If you define bankruptcy as the literal inability to pay employees, vendors, and creditors, then states certainly can go bankrupt.
A Federal bailout of state pension obligations becomes a political (not financial) problem. Why would states that are 80%+ funded agree to bail out states that are only 50% funded? Do the states that are 100% funded receive a credit to use in other ways? There's also substantial moral hazard; if the Feds backstop state pensions as-is, they would be rewarding numerous instances of local self-dealing. This would be an order of magnitude more expensive and more contentious than TARP, which barely passed even as the economy was (supposedly) near death.
I think it's more likely that we see what happened in Greece: significant property tax hikes. You can siphon a huge amount of value out of the real estate markets through gradual but steady increases in taxes and fees, if you're willing to sacrifice appreciation (see Chicago). Ironically this may be a great way to promote affordable housing too, as residential real estate becomes a less attractive investment.
A Federal bailout of state pension obligations becomes a political (not financial) problem. Why would states that are 80%+ funded agree to bail out states that are only 50% funded? Do the states that are 100% funded receive a credit to use in other ways? There's also substantial moral hazard; if the Feds backstop state pensions as-is, they would be rewarding numerous instances of local self-dealing. This would be an order of magnitude more expensive and more contentious than TARP, which barely passed even as the economy was (supposedly) near death.
I think it's more likely that we see what happened in Greece: significant property tax hikes. You can siphon a huge amount of value out of the real estate markets through gradual but steady increases in taxes and fees, if you're willing to sacrifice appreciation (see Chicago). Ironically this may be a great way to promote affordable housing too, as residential real estate becomes a less attractive investment.