The budget plan, which is expected to be voted on by the state assembly and senate on Thursday, involves deep cuts in public spending and an increase in borrowing.

The budget requires a two-thirds vote in each house to pass, meaning all Democrats and several Republicans must agree to it.

Public services hit

"There isn't a whole lot of good news in this budget," said Darrell Steinberg, the president of the state senate and a Democrat.

Public schools, colleges and universities will lose $9bn in funding under the plan, while the state’s prisons department would have $1bn removed from its budget.

Cities and counties will lose about $4bn in funding, while Medi-Cal, the state's health programme for the poor, will be cut by $1.3bn.

Under the plan, state employees would have to take three days off work each month up to, and including, June 2010 – amounting to a pay cut of about 14 per cent.

Recession-hit state
 
California, the US' most-populous state and the world’s eighth-largest economy, has been hit particularly hard by the US sub-prime mortgage crisis and credit crunch, as well as the recession.

The state's jobless rate in June was 11.6 per cent, its highest level in modern times.

Income tax revenues to California have shrunk to their lowest relative level since the Great Depression of the late 1920s.

California started issuing promissory notes to agencies and vendors in July, allowing it to hold on to cash to pay its most urgent bills.

Without IOUs, California would have run out of money and begin missing its priority payments at the end of July, according to a statement issued recently by the office of John Chiang, the state controller.