Local government and modern urban management tecnhiques will play a key role in the transition of Ukraine`s institutions from a communist to a free economy and socity. This paper provides a historic context for this transition, dicusses the problems encountered in building urban management capacities and local government institutions, and explores what it will take to achieve real change. The paper places the problems of revitalization and rebulding of these Ukrainian institutions in historical perspective, with special attention to inherited patterns of Soviet administrative culture. The Sovietization of urban planning and administration, and living standars and the creation of nomenklature ( the main governmental"human resource"), are analyzed as the starting point for rebuilding Ukraine`s local governments. Th paper traces the main resources and consequences of "continuous institutional crisis", such as distrust, corruption, and deterioration of the capabilities of the Ukraninian state. Also examined are the current effects of economic globalization on the delvelopment of local and urban governments. Following a review of Ukrainian "path dependence"and recent diffculties in institutional building, the paper outlines the most important tasks for future development and an agenda for Ukraine`s "institutional entrepreneurs". The paper emphasizes that it is vital to create a professional, rule- based bureaucracy and merit-based municipal civil service