I was going to say that it might be because during the events of the CWC DLC, Sotha Sil was replaced by his shadow and behaved very erraticaly and hence might have neglected the city, but actually, reading again about that quest line, one of the apostles who had betrayed him, said that he did it out of spite because Sotha Sil had completely neglected the city, so this seems to be an issue even before the events of the DLC.
Two possible reasons might be that 1) either he treated the city like a proof of concept, and as soon as he made all the things that he wanted to work, he moved on, without caring about preserving them, or making the city more hospitable for the people there, 2) or that he was forseeing his own demise (something he alludes to at the end of the main story line), and he wanted to focus on other things, and already distancing himself from that project.
Also, I don't think it was ever meant to be a utopia, but more like an Ark sort of construct, where people could take refuge if something were to happen in Tamriel, but in my personal view, I think he just wanted to see if he could make a mini simulacrum of Tamriel in clockwork form, hence the beasts, etc., and he suceeded. But as we find out during the quests there, and also by talking with the people in Slag Town, it wasn't suitable for sustaining living beings, and far from a utopia. Apostles were fine, because they were essentially a cult, following Seht, focusing on their work and studies, plus they had factotums doing everything for them, and probably regarded clockwork form as the ideal, so staying in the city was essential for them.
My theory is that Sotha Sil aimed to create an ecosystem which mimicked Nirn (the physical world). In order to mimic Nirn, he would have to have included all the possible imperfections which counterbalance Nirn's delicate natural law. This may explain why things like an outlaw's refuge even exists there. I think that Sotha Sil's ultimate goal by doing this was to ascertain the very nature of reality and perhaps how he might have helped his people in the process, but the answer to that question was probably far more devastating than even he, in all his knowledge, could have realized... It is likely that Sotha also predicted the future and his own demise in a way, which may explain why he later worked on the Mechanical Heart as a way to substitute the Heart of Lorkhan and sustain the Clockwork City and his people (acolytes) after he was gone.
Whatever the Clockwork City was supposed to achieve it never entirely worked and is already starting to malfunction in a number of ways by the Second Era, when ESO is set. Although some things I think are intentional and somewhere between oversights and simple practicalities which the dedicated inhabitants think everyone should just learn to deal with - like the almost total absence of biological material and therefore very limited food and water supply.
It was actually first introduced in the Tribunal DLC to Morrowind and at that point (the Third Era) it's inhabited by nothing but agressive fabricants and a thing which used to be Sotha Sil, having become uninhabitable to anyone else.
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Also because Sotha Sil has a habit of starting to work on something and lose interest halfway through and abandon it, the city is full of his half-finished and sometimes incomprehensible projects which his mortal adepts try to understand and make use of. And, because he tends to hyperfixate on his current Project du Jour, he's not well-suited to maintaining a whole perfectly working ecosystem, so those things he deems "unessential" become neglected and start breaking down. The more detached he became, the worse this got.