Who's lending California this money now? It seems quiet a risky deal.
Hypothetically what would happen if the state decided to reform these pensions, slashing them right back to something they could realistically afford?
With your example, if California tried that before declaring bankruptcy, there would be court challenges that California would lose. Even if contracts going forward were amended, that wouldn't help the structural problems from what has already happened.
Therefore California requires either bankruptcy or extraordinary assistance. And the Obama administration has indicated that no extraordinary assistance will be forthcoming.
It is worth noting here that California is one of the few states that pays more into the federal government than we get out, and the amount extra we have paid in over the years is more than enough to rescue the state government.
From: http://www.leginfo.ca.gov/.const/.article_4
Const., Art. IV, Sec. 12 actually stipulates
" (d) No bill except the budget bill may contain more than one item of appropriation, and that for one certain, expressed purpose. Appropriations from the General Fund of the State, except appropriations for the public schools, are void unless passed in each house by rollcall vote entered in the journal, two-thirds of the membership concurring."
It's exactly like how the banks are keeping their 1+ years worth of "shadow" housing inventory off the market, so as to keep a floor on prices and prevent everyone from panicking and running for the exits at once.
And just like how the Federal bailouts were passed through back channels(i.e. Maiden Lane I & II, reserve swaps with foreign central banks, etc), and arcane accounting tricks that no congress-critter can comprehend, and the biggest political smoke & mirrors America has ever seen, so too will it go for the bailing out involvent states. It won't be Obama handing Schwarzenegger an oversized $30 billion dollar check on TV like a grinning Ed McMahon. No, it'll be a thousand tiny accounting tricks to prop up California, and keep the markets in perpetual doubt about the overall fiscal status of California.
Our entire Federal fiscal and monetary policy is a waiting game. They don't know what will happen, but the thinking is if we can all just hang on long enough for everyone to adjust to the economic new normal, then we can at least avoid an outright national collapse. Nobody on the planet can even know if this will work, but there are zero alternatives.