The decentralisation of expenditure and public functions is only “one side of the coin” of fiscal federalism. A key question is also how this delegation is to be financed and how independent the subnational and local authorities are to be in their provision of public goods and services. This paper provides a brief overview of the local public finance system in the Mexican federal state Oaxaca, which is divided into 570 municipalities, of which almost three quarters are governed by the system of usos y costumbres (customs and traditions) with recognized local forms of self-governance. Moreover, the proposed block grant formula has included with the Climate resilience factor and Green electricity factor two indicators, which are worldwide unique.