This study analyzes the relationship between the municipal debt financing and grants through pooled time-series analysis. The analyses show that lower debt burdens and ratios were associated with higher levels of grants. This study also analyzes the effects of unconditional grants and conditional grants on the municipal debt financing separately. The analyses show that the debt ratios decreased with higher conditional grant and unconditional grant ratios, while the debt burdens rise with lower unconditional grant burdens only. These findings may mean that to utilize the debt financing, we have to decrease the use of grants, especially unconditional grants.