State Bankruptcies?

I hear and read more and more chatter about enabling states to declare bankruptcy. If this happens, I have a pretty good idea who will be hurt, but am trying to figure out who will benefit.

State Pension Funds
We are discovering that many states ignored their constitutional requirement to fund their pension funds. I guess they thought tax revenues would just keep going up and up while expenses remained static - oops. To make matters worse they used smoke and mirrors to balance their budgets - selling off income-producing assets for one-time cash injections. Now pundits and politicians are proclaiming that hugely expensive, underfunded pension programs are responsible for the states' financial meltdowns.

Because of their government-funded pension plans, unless they moonlight in private-sector jobs, public-sector workers do not pay Social Security taxes and are not vested in the Social Security system.

If states are allowed to declare bankruptcy, they will want to shed their pension liabilities. Retired state workers could be confronted with the loss or devaluation of their pensions and no fall-back position. Who will be affected? Teachers, firemen, policemen, garbage collectors, highway workers, the folks who worked for motor vehicles, tax collection, licensing, the courts, among others.

Bond Holders
States issue bonds to finance infrastructure. Many states have relied heavily on bond issues to keep current expenditures within budget. As a result, they now carry huge debt loads. Bankruptcy would enable them to unload a good portion of that debt. Bonds have been an important part of many folks savings and investment strategies. The modest returns were offset by their supposed safety. The pain of defaults would be widespread and crippling to the general economy.

Vendors
One of the ways states have remained "cash flow positive" has been by dragging out their Accounts Payable. This is a ploy that works best with local governments, school districts and small businesses. The big guys (corporations like GE, Exxon, Verizon and AT&T) are far less likely to tolerate it and have much greater bargaining clout. While waiting months for payment, vendors are forced to drag out their own payables and to borrow to maintain operations and pay current expenses. In bankruptcy reorganization many of these debts would be abandoned with a rippling effect all the way down the line.

Conclusion
It is easy to see who would be hurt by state bankruptcies. The growing "chatter" about making it available to the states really makes me wonder - who will benefit? Taxpayers is an obvious answer but is it the correct one? Won't the inevitable financial disruption, loss of vital services and accelerated infrastructure decay be far more damaging than any hypothetical tax relief such action brings?