North Sydney Council, home to seven top private schools including Sydney Church of England Grammar School (Shore) and St Aloysius' College, could raise an additional $1 million in rates each year if the existing rate exemption granted to private schools was repealed.
In the City of Sydney, about 1500 properties are exempt from paying rates. The Opera House is exempt while its parking lot is not.
These are two of NSW's 152 councils that are missing out on millions of dollars in revenue because of exemptions granted to schools and other organisations, such as Taronga Zoo and the Sydney Cricket Ground, under the 94-year-old Local Government Act.
These exemptions placed an unfair burden on other ratepayers, said a report by Deloitte Access Economics, commissioned by Local Government Association of NSW.
North Sydney resident Barbara Noden said the seven private schools and one university in her area were ''now big businesses'' that should be paying rates.
''I have seen the private schools in the area buy more and more property to expand their businesses,'' she said.
Using figures provided by the Valuer General, North Sydney Council estimated that each of the seven private schools plus the Catholic University in its area would pay an average of $140,000 in rates each a year - more than $1 million in total - if the exemptions were repealed.
Mrs Nolan said the schools bought rateable properties, such as private homes and commercial spaces, then did not pay rates.
''Their students, most of whom are from other areas, use all our facilities such as parks, libraries and the like and pay nothing towards their upkeep,'' she said.
Local Government NSW claimed many of the exemptions were no longer justified because the distinction between charitable, social and commercial activity had blurred.
''This [the rate exemptions] hasn't been looked at for 94 years and that's a long, long time,'' said joint president of LGNSW Keith Rhoades, a councillor and former mayor of Coffs Harbour Council.
Some exemptions could breach competition laws. Others were inconsistent. For example:
A surf club on Crown land had to pay rates (though many councils gave the rates back) but a kiosk on a national park 50 metres away was exempt;
Forestry Corporation of NSW paid no rates on its plantation forests, yet its competitors did;
Some churches owned property worth $800,000 (which was sold or leased for profit) that were exempt; and
Many schools were expanding their holdings of private lands often for non-educational use.
The Local Government Review Panel, which will report in the middle of next month, is expected to find that Deloitte's proposals warrant close examination.
It has found most councils are operating at a deficit and, if the current outlook continued, nearly half would be in serious financial trouble.
The City of Sydney supported a review of rate exemptions based on the ''principles of equity, efficiency, simplicity, sustainability and policy consistency'' as part of a wider discussion about local government funding, a spokesperson said.
Unlike cash-strapped councils, such as North Sydney and Penrith, the City - the richest council in NSW - was unlikely to pursue this agenda aggressively in its own right.
The executive director of the Association of Independent Schools of NSW, Geoff Newcombe, said the rate exemption recognised the status of independent schools as charities. ''If that changed, it would impact on parents through significantly increased school fees,'' he said.