California state employee protests against Gov. Arnold Schwarzenegger's furloughs and pay cuts at Capitol in Sacramento, 30 Jun 2009 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 Wednesday. 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.

Illinois joined California in starting the new fiscal year without a budget. Governor Pat Quinn has refused to sign any budget that would cut the budget for mental health care.

In Pennsylvania, legislators faced a $3.2 billion budget shortfall and could at least delay paying state workers.

Indiana faced a similar situation, but the state was able to pass a budget before the midnight deadline.

In California, the state plans to begin issuing the promissory notes - or "I.O.U.'s" (I Owe You) Thursday. The notes will be used to pay contractors, and recipients of state aid such as the elderly, disabled and college students.

Some information for this report was provided by AP and Reuters.