States have delayed taking substantial action in the fiscal crisis many now face. Though it appears unlikely that states will default on their debts, some pundits fear that option is not out of the question.
An article from Real Clear Markets writes about options and practices of states dealing with debt. States generally have two broad responses in controlling debt: raise taxes or cut spending. Republicans generally prefer to maintain or cut spending without raising taxes, while democrats (and big labor) largely favor tax increases to fund spending. States engaged in this deadlock make little progress as the “Left and Right are playing a game of fiscal chicken, believing the other side will blink when the state gets to the fiscal brink.”
The article comments on this discord (each side waiting for the other to give in) and explains how states could default in order to be bailed out by the federal government. The article points out that legally, states are not allowed to go bankrupt, but the federal government should act now to create the expectation that states will not be bailed out.