This article presents legal issues in connection to the relation between the state and the beneficiaries of earmarked subsidies for the realisation of public duty, especially the relation between the state and the local government bodies, as well as the purpose and the role of the subsidy contract in such relations. The provisions of the Public Finance Act referring to the conditions of allocating and reimbursement of the subsidy and, on the other hand, the right to regulate some of the rules in a contract as an institution of private law are being discussed in the context of the public character of the funds from subsidies. Additionally, common problems with the application of the provisions of the law are being reviewed in the above-mentioned context.