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In the context of more than a decade of economic expansion that ended in 2008, Spanish municipalities were active in expanding their functions through vigorous policy-making in numerous areas. The crisis meant that town halls had difficulty in providing these services and, in 2013, the central government approved a recentralization policy driven by the belief that local governments had brought about unsustainable patterns of expenditure. Using a neo-institutionalist theoretical perspective, this article analyses the phenomena of expansion of municipal involvement in childcare policies and the impact of these processes on the functioning of local governments. We observe, as an unintended positive effect of the reallocation of tasks, that local governments have legitimized themselves through action in fields not initially foreseen in the formal decentralization arrangements, and are highly valued by citizens as welfare providers. However, they have not overcome the structural lack of autonomy in which the legal system places them and, so far, they have been able to meet citizens’ expectations only when economic conditions have been favourable.Points for practitionersThe study may be taken to show that we can only understand the decentralization dynamics if we pay attention not only to the implementation of formal rules, but also to other aspects of the functioning of communities such as general favourable financial circumstances, particular citizens’ demands at one point in time and strategic behaviour of political actors. Furthermore, the outputs of decentralization are not only changes in the reallocation of tasks but also in legitimacy of local governments that can be strengthened with good performance.