States are not too big to fail.
In many ways, they have already failed.
Clearly, a state cannot fail in the traditional sense such as when a company shuts down its business; however, through decades of fiscal mismanagement, states have failed their citizens by creating structural deficits, shutting down critical services, making promises that they cannot keep and leaving current state and local governments with a legacy liability problem.
While states are not too big to fail, they are too big to save - at least if the federal government is asked to do the saving. The federal government has its own problems as it runs an eye-popping budget deficit, spends 70% of its budget on entitlements, prints money and continues to borrow (with 70% of treasuries being bought by the Fed). If the federal government were to add the states’ obligations to its balance sheet, the United States may topple over.
While states can fail and while states are too big for the federal government to save, it is time for states to do things the old-fashioned way and save themselves. To do this, the states’ leaders need to show political courage and fiscal discipline, determine what they want their states to look like over the long-term, develop a long term fiscally responsible and achievable governance plan and implement the plan through negotiations and compromise with the states’ stakeholders.