Abstract
The main focus of this study is to predict a financial distress occurring in a government sector which is defined as a condition where the government is not able to provide public services to society. The indicators used to measure this condition were seen in terms of finance where the indicators are measured using ratio of local governments’ independence, ratio of expenditure conformity and growth of regional revenue. The samples used in this study were the data from the financial statements of the local governments in Central Java province, Indonesia for three consecutive years – from 2013 to 2015, which were obtained from the Central Bureau of Statistics, Ministry of Finance and Ministry of Domestic Affairs of the Republic of Indonesia by using purposive sampling method. The hypothesis testing in this study used binary logistic regression analysis. The results of this study indicate that local government in Central Java are still experiencing financial distress due to the large expenditure for operational needs and employees’ salary needs, both direct and indirect expenditures, of which percentage was greater than capital expenditures, infrastructures and public services. The other conditions of financial distress problems were ineffective management of natural resources and assets owned by the local governments.

Keywords: Financial distress, ratio of local governments’ independence, ratio of expenditure conformity and growth of regional revenue