Navarra has no money to pay for commitments made this year.
The Vice President of the Government of Navarra, Roberto Jimenez, said that "the situation is dramatic provincial coffers are empty and there is no money to pay for commitments made this year."
"There is money to pay public workers but no money to continue to provide quality public services"
Navarra has a deficit of 600 million euros," added Jimenez.
It is not an isolated problem since local councils and regions all over Spain are facing a breakdown after massive spending cuts are turning a severe recession even more harmful.
The Telegraph reports Electricity cut off to Spanish town over unpaid bills
Coin, near Malaga in southern Spain, is, like many towns across the crisis-hit nation, on the verge of bankruptcy with an estimated debt of nearly 30 million euros (£26m) owed by the town council.
For more than a week there has been no lighting in public areas after power company Endesa cut services because of an outstanding bill of 280,000 euros (£240,000).
Meanwhile some 500 council employees in the town have not yet been paid their August wages, it was reported.
The town of 22,000 residents has been ordered to make an urgent payment of 400,000 euros (£346,000) to the Treasury in monthly instalments to cover its debts but the mayor has said the town will be forced to file for bankruptcy.
It is a problem repeated in municipalities across Spain. In some towns, police officers have been ordered to walk to crime scenes in a bid to save costs on patrol cars.
On Tuesday rating agency Moody's warned that Spain's regions could fail to meet their deficit-cutting targets, a move considered necessary for the nation to meet the EU-agreed public deficit ceiling of 3 per cent of GDP by 2013.