Abstract: The article is devoted to the questions related to the condition of local budgets in Russia and established methodological approaches to managing the social sector. The authors anaylze the process of managing local budgets. They ntoe that the current Russian system of local budget management do not allow the adoption and execution of quality management decisions which would improve the financial condition of municipal units. This creates the need to develop a mechanism of local budget managment. The purpose of the present research is to develop a mechanism of managing local budgets taking into account social partnership. Distinguished feature of the offered mechanism is the introduction of particular elements that ensure coordination of the process of decision making and execution of management decisions in the sphere of local budgets, in particular, stages of the process of alignment of interests, coordination methods and instruments and improving institutions. In their research the authors have used the dialectic method, systems' approach, methods of theoretical substantiation, scientific abstraction, generalization, comparison and interest matrix. The authors describe the current condition of local budgets in Russia, analyze established methodological approaches to managing the social sector, demonstrate their relation to modern practice of managing social finances in Russia and develop the mechanism for managing local budgets taking into account social partnership aimed at ensuring coordination of the processes of decision making and execution in the aforesaid sphere. As a result of the research, the authors conclude that implementation of the aforesaid mechanism will allow to ensure adoption and execution of management decisions aimed at improving the financial condition of municipal units.