California's state government says it will begin using promissory notes rather than money to pay some bills, because legislators failed to agree on a way to close a $24 billion budget shortfall.
It is one of several U.S. states facing serious budget problems as a new fiscal year began July 1. States have seen declining revenues due to the economic crisis.
California state senators attempted but failed to pass measures to cut more than $3 billion from the state's education budget by a midnight deadline.
Lawmakers agreed that spending cuts need to be made, but state Democrats - who control the legislature - proposed new taxes to help close the shortfall while Republicans, including Governor Arnold Schwarzenegger, opposed them.
A Washington-based research organization, the Center on Budget and Policy Priorities, reports at least 48 of the 50 states have addressed or are facing shortfalls in their budgets for the coming year.
Some information for this report was provided by AP and Reuters.