Stockton, California became the largest city to seek bankruptcy protection on Tuesday night. According to the AP, “the economic downturn, soaring pension costs and contractual obligations” left the city so in debt that they could not come to terms with creditors by the 11:59 PM Monday deadline. 

The city has a $26 million budget shortfall, and the City Council on Tuesday night, according to the AP, voted 6-1 to adopt a bankruptcy budget.

The city will most likely, according to the report, file for bankruptcy on Friday. If they formally file for bankruptcy, it will be the largest American city every to do so. 

Under a new California mediation law, cities must first attempt to negotiate with creditors before seeking bankruptcy protection.

Even as it was on the edge of the fiscal cliff, Stockton could not get many concessions it needed from the public sector in its new budget, and decades of bad and bloated contracts did nothing but add to the city’s fiscal woes. 

Stockton serves as a model for other municipalities. Enacting fiscally prudent policies earlier, no matter how much resistance they will get from the public sector, will potentially save cities facing Stockton’s fate.