ABSTRACT

            This study aims to predict financial distress in local governments by measuring only from the financial side using an analysis of their autonomy in obtaining revenue, expenditure alignment that not only focused on routine spending and the ratio of local revenue growth. This Indicator was used by taking into account both theories and conditions in Indonesia. This study was very essential to do. As regional autonomy has been enacted, the wasteful behavior of local governments that drain half of its budget only for personnel expenditure is feared would lead local governments to bankruptcy. The continued omission of employee recruitment without considering local financial capacity would result in reduced funds to build public facilities, accelerate regional development, and create quality services and equitable public welfare, as mandated in regional autonomy policies. This study measured the financial distress of local government from 3 (three) categories i.e. financial independence, expenditure alignment, and growth of PAD (Local Revenue).

            The object of this study was the data of local governments' financial statement in Central Java Province. The number of samples used in this study was 28. The data were analyzed by using binary logistic regression.

This study found that local government in central java was still experiencing financial distress condition because extravagant behavior still happened evidenced by the amount of expenditure for operational needs and employees' salary either direct expenditure or indirect expenditure while infrastructure expenditure and public service percentage were smaller. Besides, the utilization of assets and the extracting of natural resources were also not maximal so that the welfare of the people felt less optimal.