This study is intended to provide a critical overview of the localgovernment finance reform and analyze the process of strengtheningfinancial decentralization in Bulgaria. First of all, the specificsof government structure and the main components of the legalbase in the scope of local self-government are presented. Thequantitative analysis is focused on dynamics of the public expenditureindicators and the structure of local revenues, based onfact figures for the period 1990–2011 and forecast for 2012. Theinfluence of economic crises on local government finance is discussedand estimated. A comparison is drawn between the threemost severe downturns of Bulgarian economy during the last 20years, namely the price liberalization in the beginning of transition(1991–1993), the credit crunch and series of bank bankruptcies,which caused the financial crisis in 1996–1997, and the currentworldwide crisis. Some of the most important actions, takenby the government in order to consolidate the crisis are describedand evaluated on the base of their effects on the local finance.The conclusion is that although the current crisis reached Bulgariaat comparatively mature stage of financial decentralizationreform, municipalities can do very little without active centralgovernment support and cannot substitute for it in regard of thebasic anti-crisis measures.