One of the most significant reforms in Ukraine is government decentralization, the main idea of which is to create effective local self-government, comfortable living conditions for citizens, and provide them with high-quality and affordable services. Achieving these goals is impossible without the proper level of economic development of the respective territories, their financial support and sufficient sources for filling local budgets. The paper aims to show current state of local budgets’ reforming in conditions of administrative and financial decentralization in Ukraine, conduct analysis of modern problems of local budgets’ forming and systemize suggestions over the perspectives of financial decentralization in the context of the need to reform the system of authorities in Ukraine. Implementation of effective budget policy of territorial communities, creation and distribution of financial resources of local authorities is carried out through the system of local budgets. That is why the formation and financing of the local government budget is one of the most important areas of public finance that needs further research. The essence of financial decentralization is studied, advantages and disadvantages of its functioning are indicated. Particular attention is paid to the theoretical principles of fiscal decentralization and its proven impact on the socio-economic development. The article is devoted to the major trends and issues of development of local budgets in Ukraine. The structure of tax revenue in the context of changes in the budget and tax legislation in a decentralized tax powers is systematized. In the article the peculiarities of local budgets’ revenues formation in the conditions of decentralization, which are received from taxes, non-taxable sources and other revenues (without inter-budget transfers) are examined. Disadvantages and perspective ways of optimization of local budgets’ revenues formation in the conditions of decentralization are outlined. The attention is focused on the reform of fiscal decentralization as one of the key reforms that will build a modern system of governance and create conditions for the development of civil society. The fact that the main objective of territorial communities is to meet the interests of community residents in all spheres of living activity at the relevant territory is proved. 

decentralization, administrative and financial decentralization, combined territorial communities, local budgets, local budget revenues, budget legislation, tax legislation