Many states have reached "inflection points" where they must decide between providing services or paying down debts, and states with healthy balance sheets today will harbor investment opportunities of the future, said Meredith Whitney, CEO of Meredith Whitney Advisory Group.

"Look where the growth is going to come from. It cannot come from these vortex economies like California, Arizona, Nevada," Whitney told CNBC.

"Texas is a juggernaut. Florida is back on its feet. You see incredible growth through what people call ‘Silicon Prairie’ — right-to-work states that have clean balance sheets, that are creating jobs and investing in education," Whitney added.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

So how does an investor play a healthy state?

"You can invest in consumer stocks that way, you can invest in financials that way, you can invest in transports that way. States give you their play book a year in advance and they tell you where they're going to cut from their budgets. I've never seen any other industry do that. The banks don't give me their internal budgets," Whitney said.

Meanwhile, debt-ridden states like California will see municipalities deciding whether they will pay down debts or provide services.

"Now you reach a point where it's an inflection point. At what cost am I going to honor my pension obligations? And that's a case of San Jose or San Diego. At what cost am I going to honor a revenue bond? That's the case of Jefferson County," Whitney said.

"At what cost? How much am I going to cut into basic social services to honor an obligation that I just can't commit for the long term? The precedents are being set now."

The California cities of Stockton, San Bernardino and Mammoth Lakes have declared bankruptcy. San Bernardino disclosed it was battling a $46 million budget shortfall, which prompted its decision to seek bankruptcy protection.

“The Mayor and Common Council of the City of San Bernardino have determined that the city faces an immediate and severe fiscal crisis and that it is, or likely will become, unable to meet the city’s financial obligations,” according to a resolution filed with court papers, Bloomberg reported.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown