Are cities passively defaulting on their debts by not investing in the community?

As a young engineer, I used to sit in city council chambers during budget season, doing my best to help the cities I worked with figure out what to do next. These were communities I cared about, places I wanted to see thrive. But the meetings themselves were often bewildering.

People would ask questions that seemed simple—How much debt do we have? What’s in the rainy day fund? Can we afford this project?—and the answers would be vague or nonexistent. We might get a spreadsheet here or a fund balance there, but the big picture was always murky.

Related: The Growth Ponzi Scheme Revisited: Houston as a Case Study.

More than once I saw cities start a budget season with a massive deficit—hundreds of thousands, even millions of dollars in the red—and a few weeks later, the deficit was just… gone.

No tax increases. No service cuts. Just vanished.

It didn’t take long to realize that the finances of cities aren’t just confusing. They are opaque in a way that is bad for everyone.

What Are Cities Actually Promising?

When we started putting together the Finance Decoder at Strong Towns, I had two big questions I wanted to try and answer. The first one had to do with infrastructure: Can we quantify the infrastructure promises a city has a city made?

Every mile of road, every pipe in the ground, every pump or sewer or sidewalk—these are all promises. They’re not just infrastructure. They’re obligations. Residents pay their taxes with the reasonable expectation that the city will maintain all the infrastructure it has built—keep the roads drivable, the pipes functioning, the parks open and safe. But over and over again, I’ve found that few cities have even a rough estimate of how big those promises actually are, let alone a plan to fulfill them.

Cities are required to track their tangible capital assets. That means documenting (or calculating) the cost of everything they’ve built—the roads, pipes, water treatment facilities, parks, city buildings, and so on. And they’re also supposed to estimate how much life is left in each of those assets. In theory, this gives you a sense of the city's long-term obligations.

In practice? It’s a guess. Often a very generous one.

Accountants treat these assets like they depreciate in a straight line—25 years for a road, let’s say—and calculate a “book value” based on how much of that life is left. But that’s not how infrastructure works. Some things fall apart faster than expected. Some assets are never properly maintained. Others were never built to a durable standard in the first place. And so the real cost of maintenance and replacement—the actual burden cities face—is never reflected in these numbers.

My sense is that this kind of analysis, while the best available to us, still significantly overestimates a city's capacity to meet its infrastructure maintenance obligations. The assumptions baked into the accounting—about lifespan, about build quality, about upkeep—are overly optimistic. They paint a picture that looks more stable than it actually is.

Even so, we see a consistent and troubling pattern reflected in the results of the Finance Decoder. City after city has low and declining rates of infrastructure life remaining. They’re not maintaining what they’ve built. They’re falling behind. And they’re doing it quietly, because a failing road, a cracking sidewalk, and a sagging pipe are easy things to ignore.

Worse, and kind of perversely, when a city builds something new, its financial report immediately looks better. It shows up as a shiny new asset with lots of remaining life—even if it’s debt-funded, even if it is financially unproductive, even if it’s unnecessary. Building more makes the balance sheet look healthier in the short term, even as it sets the city up for long-term decline.

The Games Cities Play With Debt

The second thing I wanted the Finance Decoder to illuminate was how cities use debt. That’s where things get even messier.

I’ve seen cities borrow from their own utilities. I’ve seen them raid the rainy day fund and fill it back up with an IOU from the general budget—showing cash on one side of the ledger and a debt on the other, pretending both are real. I’ve seen them shift money around in ways that would make Enron executives blush.

And yet, when you read the financial reports, you won’t find a clear line labeled “debt.” Some cities disclose what they owe. Some make fancy charts showing debt levels trending down. But most reports give you only the vaguest sense of what’s really going on.

When the Finance Decoder shows a negative Net Financial Position, it’s revealing something fundamental: The city has already spent more money than it has brought in. That negative balance isn’t a fluke or a rounding error—it’s a real and growing claim on future revenue. And crucially, that number doesn’t even include the looming costs of infrastructure maintenance and replacement. It’s only the beginning of the city's financial obligations, not the end.

Since we released the Finance Decoder, I've had people push back and say, “Chuck, you’re acting like cities are using debt to cover operating expenses, and that’s not true.” But look closer. If you normally spend $5 million a year maintaining roads, and now you borrow $5 million to do the same work while freeing up that $5 million to spend elsewhere—you’re using debt to balance your budget. You’re just calling it capital spending instead of operations.

That’s the magic trick: Cities appear to balance their budgets without cuts or new revenue, but they do it by quietly accumulating obligations. Each sleight of hand—whether it’s borrowing, deferring maintenance, or shifting funds—adds another layer of future cost. And because these obligations aren’t obvious or immediate, they pile up unnoticed. This is how cities slide into insolvency: not with a dramatic collapse, but with a slow, steady drift into financial fragility.

Credit Ratings Don’t Mean Stability

One of the more disorienting parts of this work is seeing how cities with crumbling finances still have stellar credit ratings. Austin, Texas, for example, has a brutal downward trajectory. Its Net Financial Position is negative and falling. It's not investing nearly enough to keep up with its infrastructure. And yet, it has an excellent credit rating.

Why?

Because credit ratings don’t measure fiscal health. They measure the likelihood that investors will get paid back. That’s it. Credit agencies don’t care if a city can afford police officers or to keep the water running. They care about whether the city will raise taxes, cut services, or slash budgets—whatever it takes to make the next bond payment.

That’s not a measure of solvency. It’s a measure of how aggressively a city is willing to squeeze its residents.

A lot of people have asked me over the years: “If cities are really this financially fragile, why aren’t they defaulting?”

My answer is simple: They are. Just not in the way you think.

Cities aren’t defaulting on their bondholders. They’re defaulting on their own people. They’re failing to maintain roads. Letting pipes corrode. Slashing parks and library hours. Ignoring broken sidewalks and shuttered buildings. They are defaulting on the very promises that make life in a community work.

Now, let's be clear: This isn’t happening because cities are mismanaged. It’s not because their leaders are incompetent or corrupt. It’s not even because they lean left or right. We’ve looked at cities of every size, political persuasion, and geography. They’re all trending in the same direction.

Why? Because, as we've been saying for years, they’ve all built using the same unproductive development model.

The Real Cause: A Shared Development Pattern

The way we finance and build cities is remarkably consistent. Same road standards. Same zoning codes. Same strip malls and big box stores. Same insurance structures and mortgage finance systems. We’ve dropped the same suburban development model into every jurisdiction in the country.

And the outcome is just as consistent: fragility.

All American cities since the end of World War II experience immediate financial success by pursuing rapid growth and expansion. It provides them with a sugar high of cash today in exchange for assuming unpayable long-term liabilities. Seventy-five years of doing this and we now all live in that fragile long term.

It shows in every city we run through the Finance Decoder.

The amount of money a city can possibly raise from its development pattern is less than what it costs to sustain that pattern. The difference is made up with gimmicks, debt, interfund transfers, and bailouts.

When those dry up—and they are drying up—cities are left with no good choices.

The Finance Decoder doesn’t give us a tidy conclusion. It doesn’t offer easy answers. But it does raise the right questions.

We’ve made this tool available, for free, for everyone to be able to ask those questions. If you’re a mayor or city council member, ask your finance officer to do this analysis; it will only take one person with access to the information a couple of hours to complete. If you’re a finance officer, use this tool to start a conversation with your city’s leadership ahead of budget time.

And, if you’re a member of the public, ask the people at city hall to perform this analysis and make it publicly available. Or, you can do it yourself; we’ve already seen a number of Strong Towns members do just that.

Asking the right questions is how we get on a different path. That’s what it’s going to take if you want to turn your place into a Strong Town.