The governor of California has declared a fiscal emergency in the US state to address a budget deficit of some $24.3bn (£14.5bn).
Governor Arnold Schwarzenegger also ordered many state offices to close for three days each month until June 2010, with staff unpaid for those days.
California has been one of the US states hardest hit by the recession.
The moves comes after state legislators missed a 1 July deadline to approve a budget for the coming financial year.
State Controller John Chiang has said the failure to meet the deadline means the state deficit will increase by up to $6.5bn by September.
Mr Chiang told the BBC that many vulnerable people had been put in harm's way by the state's failure to agree the budget and to provide "essential dollars to help these people pay their rent, to put food on the table or to pay their utility bill".
He had earlier warned that drastic measures would have to be taken to conserve cash, including delaying payments to companies working for the state and to those relying on benefits and grants.
Under the emergency measures, some state offices will be closed on the first, second and third Friday of every month until June 2010, with staff not paid for those days.
Mr Schwarzenegger said in a statement that although the legislature had failed to remedy the budget problems, "solving the entire deficit" remained his "first and only priority".
"I will not rest until we get it done. I will not be a part of pushing this crisis down the road - the road stops here," he said.
The White House said it was closely monitoring the situation in the state.
On Tuesday, the Californian Senate failed to agree on Democratic proposals to shave $3.3bn from education and other programmes as a stopgap measure to address the shortfall.
Democrats believe cuts should not slash vital social programmes while Republicans argued that much deeper spending cuts were needed to balance the budget.
Republicans and Mr Schwarzenegger have also ruled out tax increases.
California struggles to balance its budget every year, but this year has been particularly difficult.
And the size of the Californian economy - it is the world's eighth largest economy and generates nearly 13% of US gross domestic product - means what happens there matters for the rest of the country.
But Mr Schwarzenegger said that despite the crisis, he was proud of California, saying 30 more states were also yet to agree a budget.
For many states, 30 June heralded the end of the fiscal year, but several were facing crucial decisions to balance the books as the deadline neared.
Many of the states are legally required to have a balanced budget, which can mean cutting services and firing workers.
US MEDIA REACTION TO THE FISCAL CRISIS
Today's California visionaries are calling for a constitutional convention to rewrite the plainly dysfunctional rules by which the state governs itself. It is not only Californians but also America that has a stake in their success. A California that decimates itself during recessions drags the rest of the nation down with it.
Harold Meyerson, writing in the Washington Post, says California
Democrats and the governor, and the Republican lawmakers who take pride in never voting in favour of any budget, have set us on a road toward two possible cataclysms: a popular revolt that will further diminish the power of government as we know it, and ruinous default that keeps the recession alive for another decade and plunges Californians, and perhaps all Americans, into nearly unimaginable misery. Sacramento players should check their rear view mirrors. Both objects are closer than they appear.
A Los Angeles Times editorial also warns that financial collapse in California
Why is this happening to California? The worst economic downturn in 60 years is playing a big role. But so is the US Senate's moronic decision to cut nearly $100 billion in state stabilization funds from the stimulus earlier this year. That money would have gone to states like Illinois and California, helping keep schools open, keep kids on health care, and prevent budget cuts from strangling economic recovery.
Blogger Eugene, writing in the Daily Kos, says Republicans are
Both the social and physical infrastructure of California is deficient and continues to degrade. It is no exaggeration to say that the health, welfare and safety of our society are endangered. "California has become ungovernable" has evolved from an observation to a cliche... The state now stares into a $24.3 billion budget hole. As the governor and the legislature play more political games, California faces the possibility of literally going broke.
On SDNN, Chris Crotty and Tom Murray say the budget crisis has
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Published: 2009/07/02 11:20:35 GMT