California has been warned it could run out of cash by the end of February
Cash-strapped California is to start notifying 20,000 state workers that they may lose their jobs.
A spokesman for Governor Arnold Schwarzenegger made the announcement after California lawmakers failed to approve a $40bn (£28.2bn) budget.
California, the world's eighth biggest economy, has been hit by the housing crisis, unemployment and falling consumer spending.
The jobs on the government payroll would be cut in June.
It would be done in preparation for the next fiscal year, which starts in July.
"In the absence of a budget, the governor has a responsibility to realise state savings any way he can," said Aaron McLear, a spokesman for Republican governor Schwarzenegger.
"This is unfortunately a necessary decision."
The budget would include spending cuts and tax increases to close the state's budget deficit.
California has already laid off state workers for two days a month, put 2,000 public projects on hold and delayed tax refunds.
The state controller predicts California will run out of cash by the end of February if lawmakers do not solve the budget crisis.
On Tuesday, the US state of California announced it is ready to notify approximately twenty thousand state workers that they are being laid off. The announcement was made by a spokesman for California's governor Arnold Schwarzenegger. The cuts would begin at the start of the fiscal year on July 1.

This comes after California lawmakers voted down a budget worth US$40 billion last weekend.

"In the absence of a budget, the governor has a responsibility to realise state savings any way he can," said Aaron McLear, Schwarzenegger's spokesman. "This is unfortunately a necessary decision." 

The state is also planning to put all remaining public work projects on hold, which could cost thousands of construction workers their jobs.

California has the world's eighth largest economy. It has suffered from unemployment and the housing crisis, with Schwarzenegger declaring a fiscal emergency last December.

"We are dealing with a catastrophe of unbelievable proportions," said Alan Lowenthal, a Democratic state senator from Long Beach.

The budget plan consisted of $11.4 billion in borrowing, $14.4 billion for temporary increases in taxes, and $15.1 billion dedicated for program cuts. The package initially appeared to have enough support to reach the two-thirds majority needed to make the bill a law, but fell short by a single vote. The Assembly was at one point in session for thirty hours, breaking the record for the longest legislative session in the history of the state.

Many Republican lawmakers say they disagree with the tax increases that are included as part of the budget package.

"People don't realize where California is at — people are losing homes, people are losing jobs," said Republican state senator Abel Maldonado.

"You're not going to go back to the people's pocketbooks to fuel that spending," added Republican state senator Dennis Hollingsworth from Temecula.

Senate leader Darrell Steinberg wants another session on Tuesday, saying that he would put up the tax provisions of the budget proposal for a vote. "Bring a toothbrush, bring any necessities you want to bring, because I will not allow anyone to go home to resume their lives ... as long as we know ... that 20,000 people will be laid off," he warned.