Indonesia's decentralization reform is now in its third year of implementation. The 'big bang' start marked the transfer of resources -assets, personnel and finances- to the regions to compensate for the added authorities and functions. While the speed and size of the changes to formal structure have been phenomenal, the adjustment of non-formal institutional settings is likely to take a long time. Many conceptual and practical problems remain and the path to reform is continuously driven by an evolutionary change in the practices as well as in the perception and expectation of decentralization. Drawing from SMERU field research, this paper highlights the dynamics of the implementation of decentralization reform at the local level and some related issues and concerns. Although this reform is still in the preliminary stages, the findings of these studies show how the reform process has influenced the evolution of governance at the local level. In addition to the general findings, special attention is devoted to the problems of budget allocation, community participation and intergovernmental coordination faced by two resource-poor regions -West Lombok and Bandar Lampung (City)- in relation to the provision of public services. Although the progress at the local level might have been overshadowed by many problems, any progress certainly needs to be acknowledged to allow local governance to strengthen.