But California can't sell them on the open market which is the point.

Think of it this way. California is at a point where they can't stop themselves from spending more than they owe and the result of that is no one in their right mind would ever buy a Bond from them. Because there's a really good chance they'll be bankrupt before they could pay it off.

So what the state is doing is taking the people they have complete power over (those who did work for them expecting payment at a later date) and giving them a certificate of debt so they can continue to pay creditors whose services they need and who they have no power over.