Well, let's just say that somehow what you are saying is correct. How comfortable would you be investing in a long-term muni bond after that? If you were a contractor, how would you feel about working on a long-term project for a state or local government? Who would want to work for the government when there is no way to trust that any of the benefits will materialized (other than the salary; then again, who knows?)

It's not just former employees that will suffer. Everyone suffers when states have to pay higher interest rates on their bonds because of poor credit ratings (that's what bankruptcy does to a state) or have to pay more for workers and contractors. Everyone will have to pay higher taxes and everyone will receive less from the government.

I cannot understand the logic of not making good on government obligations. You can take the position that the government should stop promising pensions, but how can anyone think it is a good idea for the government to fail to pay for the pensions it already promised people (or, frankly, any other promise the government made)?