In this article current problems of local self-governing institutions are discussed, the focus being vertical relations. This relates with the issue of proper level of resources and an indispensable level of autonomy for their functioning. The resources supplied to self-governing local authorities are inadequate to carry out their tasks. This situation has not only improved but has become worse even if the state of public finances has significantly improved. On top of it the recentralisation is remarkably visible as a trend – many local competences of local authorities have been transferred to the central government. The article proposes to analyse this issue from the perspective of the so called municipalisation of the state – a situation when an important number of state’s tasks is being carried out by local self-governing authorities. Not only adequate systemic solutions but also proper social, political and material conditions are needed to make full use of advantages that self-governing bodies provide as part of the state mechanism. Otherwise institutional merits of self-governing will not appear. The current situation results in deterioration of performance in tasks delivered not only to local communities but to the state as such.