This paper deals with the global decentralization issues, i.e. it explores how, when and why decentralization occurs, the preconditions for a successful decentralization and its advantages. It also examines the situation at the lowest levels of government in Croatia i.e. in a city, with the purpose of presenting the current financial situation and recognizing the key problems connected with decentralization at this level of government. It has been established that Croatia has made a remarkable progress in its decentralization process, although there are still many shortcomings that need to be removed.