States Going Belly Up

New York -

The first three quarters of 2009 were the worst on record for states in terms of the decline in overall state tax collections, as well as the change in personal income and sales tax collections. The Great Recession hit virtually every single source of tax revenue and pushed a number of states to revise revenue forecasts numerous times throughout fiscal 2009 and 2010, with significant impacts on services.

Illinois -

While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it's not generating enough cash to pay its bills. ... "I would describe bankruptcy as the inability to pay one's bills," says Jim Nowlan, senior fellow at the University of Illinois' Institute of Government and Public Affairs. "We're close to de facto bankruptcy, if not de jure bankruptcy."

New York again -

New York's governor unveiled a painful budget plan Tuesday that slashes services, raises fees and implements some creative actions to close a yawning $7.4 billion fiscal gap.
...
"There are no more easy answers. We cannot keep spending money that we do not have," Paterson said in a written statement.
...
The state's woes are a bellwether of what others around the nation are facing. New York's fiscal year starts in April, the earliest of any state.

Ohio -

Ohio's tax coffers are nearly $100 million lighter than officials had expected by this point in the fiscal year, largely due to a January income tax shortfall.
Officials say total tax receipts for the seven months ending in January fell short of projections by 1.1 percent, or $99.6 million. According to preliminary numbers, last month's income tax collections missed the mark by 15.6 percent.

Do I even need to bring up Detroit?

Here's a good example from Pewaukee what to do -

The city voted in November to close the police department and then contract with the Waukesha County Sheriff's Department. Officials claim it will save the city around $1 million. 26 officers lost their jobs with Waukesha County hiring 16 of them.

Ahhhhh, non duplication of services and reduced cost. Good to see that my county is going about it the right way.