Purpose. The aim of the article – carrying out theoretical-methodological and empirical studies of the causes of insufficient capacity of created rural and settlement united territorial communities (UTCs) of Luhansk region with a help of comparative analysis of Poland's experience in decentralization and local self-government reforms; determining the trend of UTCs development and improving their financial-and-economic condition in Ukraine. Methodology / approach. In the context of the implementation of dialectical methodology, the following methods of cognition were used. The method of comparisons is for a generalized survey of decentralization and local self-government reforms in Ukraine and Poland. The method of grouping – when separating rural and settlement UTCs in Ukraine, in particular, Luhansk region, for further analysis of their financial and economic condition. The method of economic and mathematical modeling – to determine the trend of dependence of the amount of money earned by communities per capita on the area of agricultural land of these communities. Results. On the basis of a direct analysis from the implementation of local government reforms to date, a systematic comparative analysis of the conditions for the establishment of gminas in Poland and UTCs in Ukraine, which allowed to clearly identify the relevant socio-economic challenges in Ukrainian realities. It was shown that neither the current legislation of Ukraine nor the existing Methodologies of the Cabinet of Ministers take into account the common real situation when some UTCs (UTCs-recipients) attract residents from other UTCs (UTCs-donors) for work, purchase of goods and payment for services, etc. As a result, UTCs-recipients will receive additional revenues to their budgets from UTCs-donors. Originality / scientific novelty. On the example of the analysis of financial and economic results of a separate group of rural and settlement UTCs of Luhansk region, the argumentation of a new understanding of the identified contradictions of local government reform in Ukraine was improved: the quantitative assessment of the capability of the created UTCs according to the Methodology adopted by the government practically does not correlate with their indicators of filling in local budgets. For the first time, using economic-mathematical modeling was proved that the increase in the area of UTCs' agricultural land has a positive impact on the amount of own revenues pulled by communities to their budgets in calculation per inhabitant, as evidenced by the trend of such impact. Practical value / implications. Identified obstacles and factors for increasing the effectiveness of UTCs' can be used by public authorities and local governments for planning new and regulating the activities of already established communities. Using the experience of Poland, consideration of the identified shortcomings of the current UTCs' formation in Ukraine and their budgets is the basis to identify the best directions and mechanisms to improve legislation on the creation and development of rural and settlements' UTCs in Ukraine.