Stockton Already Told Us How This Ends

Stockton’s 2012 bankruptcy filing gets taught as a morality play about municipal excess. It wasn’t excess. It was a fiduciary breach, and the record proves it. In 2007 the city council voted to sell $125 million in pension obligation bonds and hand the proceeds to CalPERS, a bet that investment returns would outrun the interest owed. The bonds priced months before the 2008 crash. Stockton’s own bankruptcy filings admitted the unfunded liability the bonds were meant to erase had been “largely created by enhanced retirement benefits” the same council had approved in the late 1990s and early 2000s. That’s not misfortune. That’s a documented decision, made by named officials, that failed the people who depended on it.

I’ve spent more than thirty years managing capital for institutional investors and family offices, and I’ve sat in the deposition chair defending investment decisions under oath. The lesson those depositions teach never changes: financial judgment isn’t a personality trait. It’s a discipline built by having capital, your own or someone else’s audited capital, on the line before the vote gets cast. Stockton’s council didn’t have it in 2007. A remarkable number of city halls don’t have it now, and this summer two of the country’s largest just handed the keys to people who have never managed one.

Start with the scale of the problem before naming names. Truth in Accounting’s Financial State of the Cities 2026 report found New York City $184.6 billion short of what it needs to pay its bills, a burden of $61,700 per taxpayer and an “F” grade. Chicago carries a $41.1 billion gap and its own “F.” Pew Charitable Trusts counted budget gaps in at least 20 of the nation’s 25 largest cities for fiscal 2026, a spread wide enough that Stockton’s old excuse, we were blindsided, no longer applies to anyone.

New York just supplied a fresh exhibit. On June 30, Mayor Zohran Mamdani and the City Council signed off on a $125.8 billion budget that closes this year’s gap with roughly $5 billion in what budget watchers call “one-shots,” meaning revenue that funds ongoing programs but won’t reappear next year. City Comptroller Mark Levine warned the deal does not resolve the structural challenges ahead and that next year’s budget could be even more difficult. Mamdani’s resume before City Hall runs from a foreclosure-prevention counselor in Queens to five years in the state Assembly. Neither job requires pricing a bond, managing a payroll, or answering to a bond-rating committee, and it shows.

Seattle offers the mirror image on the opposite coast. Mayor Katie Wilson, sworn in this January, inherited a budget that by May had grown into a projected near-half-billion-dollar deficit over three years, a shortfall her own city’s forecasters say exceeds what her predecessor projected. Wilson’s pre-mayoral career ran through construction, boat maintenance, and more than a decade running a transit-advocacy nonprofit, honest work, none of it prior fiduciary or executive-management experience, and this was her first time holding elected office of any kind before taking the largest financial job in the city.

None of this is an argument about party or ideology. Chicago is run by Democrats and so is Houston, and Houston earned a “C.” The variable that matters is whether anyone at the table has personally carried the consequence of a bad financial call. Public pension boards already illustrate the pattern: CalPERS’s own board of administration runs on six seats elected by member and retiree constituencies, three appointed by the governor and legislature, and four filled ex officio by state officials, with no seat set aside for an independent financial professional free of political patronage, a safeguard federal law requires of a corporate audit committee. City halls have adopted the identical structure by default. Nobody designed it that way on purpose. Nobody has fixed it either.

Layer onto that a cost most city budgets never priced in a decade ago. California’s sanctuary policies coincide with a state that a FAIR analysis, an advocacy-group estimate that deserves that label, puts at roughly $22.8 billion a year in state and local service costs tied to its illegal-immigrant population. A Stanford study cited by CalMatters found rising pension contributions alone are already crowding out funding for public assistance, libraries, and health and social services in California cities. A city carrying a structural deficit doesn’t get to choose which unfunded mandate breaks it first.

Stockton didn’t fail because California is uniquely reckless. It failed because the people voting on its balance sheet had no professional obligation to understand one, and no personal cost when they got it wrong. New York and Seattle just ran that same experiment, at ten times the scale, with mayors who took office having never signed a payroll or answered for anyone’s retirement fund but their own. Cities don’t learn from bankruptcy. They forget the arithmetic, replace the council, and wait for the next generation of officials to rediscover it the hard way, on somebody else’s dime.