The objective of this article is to demonstrate that the financial position of local government units (LGUs) is improving and that their liquid resources (financial assets) exceed their financial liabilities. The Government and the Ministry of Finance hence must determine the reasons for the increased solvency of LGUs, put a brake on their borrowing, reduce the set limit and impose additional constraints on borrowing, leave the financing of capital projects to the commercial banks and define separate constraints for borrowing by the City of Zagreb and by other LGUs.