Subject. In the study, I evaluate how financial imperatives and restrictions influence the formation and use of the local budget. Objectives. The study analyzes causes of the deficit of the local budget, municipal debt and debt servicing expenses and review them for current limits set by the budgetary laws. Methods. I analyzed scholarly data and other information and conducted the synthesis of the findings. Results. To ensure that the local budget is compliant with lawful financial imperatives that govern budgetary planning and local forecasts. I suggest how the profitable part of the local budget should be backed and expenditures should be optimized. Conclusions and Relevance. Income and expenditures of the local budget are regulated with financial imperatives set by the Budget Code of the Russian Federation, such as the balance of income and expenditures, limit of the deficit, limit of the municipal debt, the upper limit of municipal debt servicing expenditures. To ensure the compliance and increase the profitable part of the local budget, municipal authorities should more actively support investment projects and SME, update the information about the taxable base and holders of real estate for purposes of non-taxable income growth, handle overdue payments and underpaid taxes and property payments more intensively. To optimize expenditures of the local budget, it would be reasonable to replace the region’s debt liabilities to credit institutions with cheaper publicly-funded loan from the higher-level budgets, and refinance the current debt liabilities to credit institutions as the Central Bank of the Russian Federation decreases the key rate.