A recent analysis highlighted this disconnect by examining the finances of major U.S. cities. Despite legal requirements for balanced budgets, many municipalities continue accumulating long-term obligations that do not appear in annual budget debates. The result is a growing gap between what governments promise and what they can afford.
According to Truth in Accounting’s 2026 Financial State of the Cities report, the nation’s five largest cities collectively carried roughly $240 billion more in liabilities than assets available to pay those bills at the end of fiscal year 2024. Much of that burden stems from pension and retiree health obligations that accumulate over decades rather than a single budget cycle.
New York City carried the largest taxpayer burden, followed by Chicago and Philadelphia. Chicago alone faced an estimated $41 billion shortfall, equal to approximately $42,600 per taxpayer under the report’s methodology. Importantly, these figures do not necessarily mean bankruptcy is imminent. They do suggest that many cities have deferred costs into the future while continuing current spending levels.
This is not simply a fiscal problem. It is a governance problem.
Municipal budgets often reward the visible and immediate: new programs, ribbon cuttings and one-time initiatives. Long-term liabilities, by contrast, remain largely invisible until they become unavoidable. Pension underfunding rarely generates headlines during good years, but it constrains future budgets when economic conditions worsen.
The challenge becomes more acute when cities lose residents or businesses. A shrinking tax base means fewer people are available to support obligations incurred decades earlier. This dynamic creates what some observers describe as a zero-sum environment: every additional dollar devoted to legacy costs is a dollar unavailable for policing, parks, transit or infrastructure.
Cities are hardly powerless in the face of these pressures. Some municipalities have adopted stronger reserve policies, accelerated pension contributions and increased financial transparency. Others have implemented performance-based budgeting that measures whether spending produces measurable outcomes rather than simply maintaining existing programs.
The distinction matters. High spending does not automatically produce high performance. Residents care less about the size of a budget than whether streets are safe, permits are issued quickly and public services function reliably.
Critics of fiscal restraint often argue that cities are underfunded rather than poorly managed. There is some truth to this claim. Urban governments face rising costs driven by inflation, aging infrastructure and growing service demands. But additional spending without structural reform risks repeating the very patterns that produced today’s liabilities.
The more useful question is not whether cities spend enough. It is whether they spend effectively.
Municipal leaders should focus on outcomes: safer neighborhoods, faster service delivery, stronger infrastructure and long-term financial stability. Transparent accounting that fully recognizes pension and retiree obligations is an essential first step. Residents deserve to know the true cost of government, not merely its annual operating budget.
Healthy cities are built on more than ambitious spending plans. They require institutions capable of balancing present needs with future obligations. Cities that master that balance will remain attractive places to live and invest. Those that do not may discover that larger budgets alone cannot sustain urban prosperity.