It is called voting in the legislature to cancel obligations

American States Are Already Free To Seek Shelter In Bankruptcy Court

The article cites past decisions on the contracts clause.

The Constitution’s “contract clause,” in Article I, Section 10, does bar states from impairing contracts and has therefore been held to prevent states from enacting their own state bankruptcy statutes.

States can pre-declare any contract is subject to cancellation, as long as no ex post facto is followed. So the states are left with the will of the legislature as long as they are willing to suffer lawsuits on the ex poste facto issue. But it really is immaterial. When a legislature votes that it is broke, then that vote holds.

Ex ante bankruptcy provisions are all about handling the legislated power to cancel contracts, and their is no provision against that since contracting parties were warned. The feds do it:

Almost every federal contract contains a clause allowing termination for convenience or default. Termination for convenience allows the federal government to terminate all or part of a contract for its convenience, while termination for default means the government doesn't think you're performing adequately.

I searched and searched for some lawyer that knew thee difference between state and federal contract obligations, and this is the best I found page ten in google:

Termination for convenience clauses are standard in public and private construction contracts and provide a means for one party to terminate a contract without breaching it. In the public sector, a government agency (whether federal, state, or local) typically may terminate a construction contract if the contracting officer determines that such action is in the "best interest" of the government.

The law is fairly confused, termination for convenience are common clauses.  This clause is the equivalent of a bankruptcy provision.   Lousy lawyers almost always foul this up, I am sure, so one way or the other, a state bankruptcy will generate hordes of lousy lawyers it seems. But most states will find that most contracts have this clause. Some states will discover they have hired lawyers dumber than a turnip.

What about California?
On pension contracts, we are bound and cannot escape I am sure, and I am equally sure California is run by lawyers dumber than turnips.  California will be in a mess and has no way out until Nancy engineers some complex mess of a massive federal stimulus bill, a months long process.  Local governments will be moribound waiting in expectation.  Houston, we have a problem.

Speaking of which, from history:

House Democrats will soon detail plans to get federal aid to state and local governments to help them weather the economic fallout from the coronavirus pandemic, Ways and Means Committee Chairman Richard Neal (D-Mass.) said today.
Provisions will include tax-advantaged borrowing programs, known as private activity bonds and Build America Bonds, Neal told members of the U.S. Conference of Mayors during a Zoom conversation. A former mayor himself, Neal said he also favors revenue-sharing arrangements similar to those of the 1980s.

OK, revenue sharing worked the last time gthe federal government defaulted. The states needed the money to reprice everything after Nixon decided the Vietnam was a fiasco not worth paying for.   Remember, it was the dumbshit small states who pushed and supported the fiasco, and at the time they deserved to get the shaft.

Now revenue-sharing is finished, a victim of the mounting Federal debt and a Washington tradition of preaching intergovernmental cooperation while practicing every-government-for-itself. After October, 80 percent of America's small towns - too small to mount expensive lobbying campaigns for grants from the huge Federal bureaucracies - will be disfranchised in terms of direct financial aid from the Government.

Exactly. After a bunch of idiotic senators from small states foul badly, eventually we punish them horribly for their ignorance.

The message here, for small and medium states, like Kentucky, you are going to get fucked royally because you are too fucking stupid to solve the earmark issue. We dp nopt care. Producing smart senators is the responsibility of the states, states who fail that premise are going to get screwed, and none of us will care, we are tired of boneheads, like that nut from Oklahoma.

It will not work long, the corruption in the Swamp ay too deep:

The idea [revenus sharing] provoked opposition from a formidable but disorganized coalition of House liberals who wanted to spend Federal money their way and conservatives who wanted to spend no money at all. Wilbur D. Mills, through whose Ways and Means Committee any bill would have to pass, told reporters: ''I'm going to hold hearings in order to kill it.''

In other words, our pundits have no clue and the 250 year old problem remains.  We have a mess, we are likely to do the midnight default over drinks, Nixon style.

Revenue-sharing was a success from the beginning. Big cities got a boost and small-town America could for the first time count on direct aid from Washington. There were no strings on how the money could be used, and the oversight requirements were simple. Every community had to hold public hearings on how the money would be spent; there could be no discrimination in its use; public audits would show how it had been spent. It was government at its finest: elected officials were given resources and authority and held accountable at the next election for what they had done.

And along came Nancy and the whole plot fell apart.