The present situation is characterized by absence of physical infrastructure and financial resources necessary for efficient functioning of local self-government. It is known that local administration authorities influence local governments, and the latter cannot function independently.

The aim of the article is to examine financial decentralization, which is closely connected with the activities of local governments. Special attention is given to the analysis of local government as part of local authorities system, the independence of its finance and resource base.

The relevance of the problem under consideration is that there is an urgent need for the reformation of the system, which has functioned until recently. The degree of local government independence in local budget formation shows its sophistication and characterizes the state of financial decentralization in the state. At present, state relations require considerable changes in legislation and state system functioning. The analysis will help to expose the most urgent problems and find the ways to deal with them.

The analysis of recent research and publications shows that the problems of relationship and interaction of local government bodies have been in focus of attention of such scholars as V.Y. Chyrkin, V.M. Shapoval, B.I. Bordeiuk,
M.P. Orzikh. The issues of local finances were studied by O.P. Kyrylenko, V.I. Kravchenko, V.I. Nadzharov etc., though the aspect of financial decentralization has not been considered in their publications and needs further detailed analysis.

The financial aspect plays an important role in the process of local government reformation. The autonomy, material and financial independence of the institute of local government declared in the Constitution of Ukraine brings to life the need for urgent solving the problems of local finance formation and finance organization on new principles.

The real state of financial support of the local government bodies to perform their functions and tasks within their own competence as well as the realization of the powers delegated by the central government bodies is very complicated. The key concept related to the local community finance management is to avoid the practice of involving the local administration bodies into the local finance management. According to the changes in the Constitution, the above-mentioned powers are delegated to the executive bodies of the local governments on the district and region levels (regions and the Autonomous Republic of Crimea). Apart from this, the fundamental importance for local finance functioning is the inclusion of local communities into the administrative and territorial system of Ukraine and the recognition of them as its basic units.

After making changes to the Tax and Budget Codes of Ukraine resulting from the proclaimed course on decentralization of power in Ukraine, the principle of reallocation of the united territorial community resources has undergone changes.
The financial capacity of local power has become an important issue. This leads to the necessity for reconsidering the financial regulations of the budgetary provision of administrative and territorial units according to GDP growth and revenues of local budgets; development of regional standards in public service provision (in particular, the list of free services for socially vulnerable population); creation of the mechanism which will ensure influence of the institutions of public power and civil society on decision-making in the financial sphere.

Key words: decentralization, local budget, budget process, income and expenditure.