The constitutional foundations determine the place of local self-government within the state and social system. The importance of territorial self-government of local communities both in Slovenia and in Croatia has enormous significance in the everyday life of citizens. Historically, Croatia and Slovenia had different solutions for organizing local units, and understanding these solutions provides valuable insights for the present and future of both countries. The Croatian model of local self-government is based on the principles of decentralization and subsidiarity, where legal affairs are performed at the lowest possible level of government that is closest to the citizens. The system was established in the early 1990s, and the key laws that regulate it are the Law on Local and Regional Self-Government and the Constitution of the Republic of Croatia. The geographical and demographic characteristics of the country of Slovenia, as well as the legal framework, play a significant role in shaping Slovenian local self-government, including often different political interests. The Organization for European Cooperation and Development (OECD), together with other international organizations, introduced the concept of "good governance" respecting the key principles of good governance through openness, effectiveness, compliance and citizen participation in decision-making. Zagreb and Ljubljana are excellent examples of cities facing the challenges and opportunities of managing large urban areas. Both cities show different approaches and challenges in the management of urban areas, but also the potential for further development and improvement. Looking at energy efficiency, energy independence should be established through the use of renewable energy sources and improving the energy efficiency of buildings. Respecting the "Smart City" guidelines, it is necessary to implement numerous new smart technologies, such as traffic and air quality monitoring systems, which can serve as a model for further development. By increasing citizen participation in decision-making, transparency and trust in local government is further improved.