Local governments in Karnataka are highly dependent on state government’s financial support. Due to excessive dependence, the performance of local bodies becomes vulnerable to any adverse changes in the resource transfer. The vulnerability is greater when the grant giving agencies themselves are under fiscal stress. This paper observes that devolution to local bodies is highly vulnerable to State’s overall fiscal position and create uncertainty in the fund flow. This phenomenon is more predominant for the PRIs and to plan/development funding for the urban local bodies. There has been a sharp decline in plan funding from the state’s plan outlay from both the state and Central Government sources reiterating the fact that the non-development component continues to be on the rise. The nature of support provided by the Centre and states are substituting for one another, which once again raises the issue of predictability of assured funding to undertake developmental activities.