Local government has made use of information technology for a long time, but the level of information technology capacity varies tremendously across local governments. While web-based E-government applications development becomes more prevalent, applying newly developed IT continues to depend on the general ability of government to obtain, manage and utilize IT. This paper starts by providing a comprehensive definition of IT capacity, which incorporates both human aspect and non-human aspect of IT capacity. Next, we propose a theoretical model to identify and knit together the crucial factors affecting the achievement of IT capacity in local governments. Managerial capability of IT manager affects the level of IT capacity of a local government through the interactions with support from administrative authorities and financial supports available for IT innovation. A series of cases from New Jersey municipalities illustrate the proposed theory and enrich it by revealing the relationships between the factors not identified in the theory.