Thousands of government workers in the US state of California may lose their jobs after politicians failed to approve a $40bn budget.

The biggest US state and the eighth largest economy in the world is facing financial collapse as unemployment and declining consumer spending eats into the state's tax revenue, leaving it without sufficient cash to pay its bills.

The state controller predicts California will run out of cash by the end of February if politicians do not solve the budget crisis.

"We are dealing with a catastrophe of unbelievable proportions," Alan Lowenthal, a state senator, told the Associated Press.

Stalled budget

Arnold Schwarzenegger, the governor, and Democratic legislators are trying to enact deep cuts and $14.4bn in tax increases to cover the state's spending until June 2010.

But marathon sessions and backroom deals to try to pass the budget have yielded no results, with Democrats in need of one more Republican vote to push the bill through the senate.

On Tuesday, the Schwarzenegger administration began informing up to 20,000 workers that they may lose their jobs in a move to trim the government payroll, but the process can take up to six months.

At the same time, the finance department ordered state agencies to shut down 276 infrastructure projects starting on Thursday unless the state can find private, local or federal money to continue the work.

The shutting down of the projects could affect 92,000 construction workers.