The governor of California, Arnold Schwarzenegger, has declared a fiscal emergency, amid fears the state could run out of cash by early next year.
He has ordered lawmakers to hold a special session to tackle the $11.2bn (£7.5bn) deficit in California, one of the world's biggest economies.
Across the US, state tax revenues are down because of the economic slump.
State governors have been meeting President-elect Barack Obama to press the case for federal help.
Governor Schwarzenegger on Monday invoked powers allowing him to declare a fiscal emergency as the new state legislature was sworn in.
"Without immediate action, our state is headed for a fiscal disaster," Mr Schwarzenegger said, saying that the current $11.2bn shortfall could swell to "a staggering $28bn" over the next 18 months.
"I compare the situation that we are in right now to finding an accident victim on the side of the road that is bleeding to death," the Republican governor told a news conference in Los Angeles.
"We wouldn't spend hours debating over which ambulance we should use, or which hospital we should use...No, we would first stop the bleeding, and that's exactly the same we have to do here."
He said the state was already drawing up plans to lay off public employees. - BBC News
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