While it has never happened, States unlike the federal government can become insolvent, Issuing IOU's (aka debt) only works if the businesses are willing to accept and loan the state the money. and IOU for services is no differant functionally than a loan, and if your business does not believe the state is good for it then you will stop providing services
Further I am sure employee will stick around for a long time when their paychecks are replaced with "IOU's"
So sure technically there is no bankrupcy court for the entire state, the fact remains that a State can absolutely enter in to a condition that is more or less the same thing as bankrupcy. The feds can just print more money, and most likely CA would beg the feds to do just that to bail them out should that happen
Local municipalities and counties can absolutely go bankrupt. Which is more likely in this situation