LGNZ said councils spent about 10.5 per cent of all public expenditure, but raised only 8.3 per cent of all public revenue.
Tauranga mayor Stuart Crosby said the review was important, particularly for the growth of the city.
"We have limited tools for funding: Rates, user fees and charges, and development contributions," he said.
"Any opportunity to broaden that is welcomed."
LGNZ president Lawrence Yule said the findings demanded New Zealanders "take a fresh look at the way local government is funded for the benefits of communities".
"The goal is not to increase the overall tax burden for New Zealand, but rather to determine whether a different mix of funding options for local government might deliver better outcomes for the country," he said.NZME.