California, which is on the brink of running out of cash, will notify 20,000 state workers on Tuesday their jobs may be eliminated, a spokesman for Governor Arnold Schwarzenegger said on Monday.
The announcement came a day after California lawmakers narrowly failed to pass a $40 billion budget that would have plugged the state's deficit with a mix of tax hikes and spending cuts.
"In the absence of a budget, the governor has a responsibility to realize state savings any way he can," said Aaron McLear, a spokesman for the Republican governor. "This is unfortunately a necessary decision."
The layoff notices will affect about 20 per cent of state workers, McLear said, adding the cuts would extend to every part of state government.
The positions would be eliminated in June in preparation for California's next fiscal year, which starts in July.
California, America's most populous state and the world's eighth biggest economy, has experienced a dramatic fall in revenues because of the housing downturn, rising unemployment and a sharp pullback in consumer spending.
To conserve cash, the state has stopped public works projects, furloughed state employees for two days a month and postponed sending out tax refunds.