States and municipalities end up in Chapter 9 (instead of the chapters 7, 11 and 13 that most folks are familiar with). Chapter 9 cannot get rid of debt, it can only "restructure" the payments and interest rates. The reason is because of how courts have interpreted the 14th Amendment.
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Because of the commas, courts interpret that to say: Section 4. The validity of the public debt of the United States, authorized by law, shall not be questioned.
The only way for a city to ditch their debts would be to disincorporate and stop being a city. Jefferson County in Alabama is looking like the first county (as far as I know) to have to file Ch 9. And I don't belive that any state has filed Ch 9 either.
If it has to go the way of disincorporation, I suspect that CA would end up becoming a minimum of 2 new states.
That wikipedia article says the 14th made some state debt void but says nothing about other state debt or contracts being non-dischargeable/non-changeable.
There's a 10th amendment issue (limiting the power of the federal govt to order state/cities to do things), some federal bankruptcy law changes (after a company did what Vallejo wants to do to labor contracts, congress changed what companies could do, but not municipalities), and state law provisions (which may cover labor contracts by municipalities).
That's too bad. New management might be a nice change.