This study investigates the theme of performance measurement among local authorities in Israel. Using a broad approach, it deals conceptually with performance measurement and financial performance of local authorities in Israel as compared to several Western countries, and explores the implications for accountability and public trust in government. This study proposes and empirically tests a model for measuring the financial performance of local authorities in Israel. It demonstrates how to design effective performance measurement in two areas: (a) financial strength/weakness, and (b) level of municipal development of the local authorities. By so doing, the article suggests advancing performance measurement in the governmental sector by using financial data from annual financial reports.