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.