<![CDATA[Fiscal decentralization is meant to strengthen local fiscal capacity, yet island regencies face high service costs and narrow revenue bases that keep them dependent on central transfers, a weakness that an unqualified audit opinion does not reveal. This study analyzes the financial performance of the Siau Tagulandang Biaro (SITARO) Islands Regency Government, Indonesia, for 2021–2025 and explains how island geography shapes it. A descriptive quantitative design was applied to five regional financial ratios (fiscal decentralization, financial independence, revenue effectiveness, financial efficiency, and expenditure harmony) computed from Budget Realization Reports (LRA) and interpreted against official criteria, with interviews of three officials of the regional financial management agency (BPKPD) used for triangulation. Fiscal decentralization (3.46%–5.01%) and financial independence (3.62%–5.35%) were consistently very low, indicating an instructive relationship pattern. Revenue effectiveness fluctuated, falling from 104.48% in 2021 to 67.30% in 2024 before recovering to 99.43% in 2025. Financial efficiency improved from 85.61% to 76.33%, while the operating expenditure share rose from 75.15% to 90.95% and the capital expenditure share fell from 24.44% to 8.63%. The study positions island geography as a contextual variable that jointly constrains revenue capacity and capital expenditure capacity, rather than treating fiscal dependence and expenditure composition as independent phenomena. Island regencies should adopt geography-sensitive own-source revenue strategies and realistic revenue targets while safeguarding capital expenditure space for infrastructure and inter-island connectivity.]]>
