The more appropriate word may be ‘insolvency’.
I doubt that was the word she was searching for, but that is certainly the right word. I don't see how California can become anything other than insolvent in the coming years, perhaps even months.
Strangely enough, California is an example of populism run amok. The non-discretionary spending that they are now saddled with comes in large part from their ballot initiatives. They've got a mess on their hands, with no real way of solving it. Of course, that ignores the fact that the strength of the government service unions keeps them from solving their problems, even if the ballot initiatives weren't there.
Call it what you want, insolvency, bankruptcy whatever - it's still an unavoidable financial Armageddon coming down the pike.