“States can’t legally declare bankruptcy - not sure if cities can not either.”
Cities can and do declare bankruptcy. We’ve had several major cities here in CA go under. And they have had Bankruptcy Court sanctions that would have allowed them to give union contracts and PE pensions haircuts, but it each case thus far, they have somehow managed to exit bankruptcy without so doing. Stockton and Vallejo are examples. The open question is did they really fix their financial problems, or once again find a way to kick the can down the road? My bet is that they didn’t really fix anything, and that they will be back in bankruptcy again very soon, because in both cases, the city governments took the side of their employees instead of their taxpayers. Until governments become instruments to serve the taxpayers at reasonable costs instead of being jobs programs for “union DemoRATS,” there will be no real solutions.
This is a big issue here in NJ, where the Dem candidate for governor criticizes the fact that we’ve been downgraded several times during Christie’s reign. Christie was one of the first to highlight the problem, and the Dem’s unspoken message is that he’ll tax the heck out of us to deal with the debt (he has already admitted he’ll raise taxes). The fact that he seems to be leading in the race shows how NJ is determined to follow CA and IL into financial ruin; it is even worse off than CA because it is very easy to circumvent a small state like NJ to get anything done. For example, when another Dem governor wanted to charge for saltwater fishing licenses, it only died when it became clear that people could easily fish from neighboring states instead - and this included NJ fishermen themselves.