> How does a government funded org ever face bankruptcy, unless the government wants it to for political reasons?

It depends on the bankruptcy laws, and its possible that a "government funded" org still would be covered by them.

OTOH, in this particular case, its probably the common confusion of "bankruptcy" with "insolvency" playing a major role. Insolvency is usually the reason an entity enters (voluntarily or not) bankruptcy, but the two states are not equivalent.