ABSTRACTThis preliminary study describes the flow of resources through municipalities and Regional Services Councils in South Africa's cities. It argues that the main business of municipalities is the provision of traded services; characteristically, rates income accounts for about one fifth of total municipal income. The problems of black local authorities are examined in two case studies. The effects of RSC income and expenditure patterns are discussed, as is the burden of incorporating all residents of functional metropolitan areas into an adequate system of metropolitan authorities. Some principles to guide the evolution of a more effective local government finance system are adumbrated.