It's not just local authorities. Anyone storing users'/citizens'/customers'/whoever's personal data in the cloud with a supplier who is American owned is at risk of being in breach of the DPA if the safe harbor agreement collapses, as it may in the wake of this kind of US court case (the one everyone is watching with interest is the Microsoft Ireland one).
If any of these cases are ruled in favour of the US Government by the Supreme Court then the Safe Harbor Agreement isn't worth the paper it's written on.
I know the local authority I work for has this very high on its Information Governance agenda and has got contigency plans; however there is obviously a substantial cost involved in relocating to an entirely EU based supplier, which we would rather not spend (as it's taxpayers' money!) if we don't have to.
Of course the prospect of the UK leaving the EU (and therefore no longer being part of the safe harbor agreement (which is between the EU and the USA) is also a complicating factor.