The most dramatic negotiations unfolded in California, which failed to meet a midnight deadline and now may need to issue IOUs instead of paying bills.
The end of June marked the end of the fiscal year in many states, meaning lawmakers worked late Tuesday to pass budgets in a year that has seen the recession take a devastating toll on government finances.
In most states, the debate centers on whether states should be raising taxes to bridge the budget gaps.
"We have that duty to make sure that no one starves," California state Democratic Sen. Jenny Oropeza as she pleaded with GOP senators for their votes, reported the Los Angeles Times.
The California Senate ended Tuesday's late-night session after failing to approve a stopgap plan to stave off the need for IOUs and ease the state's $24.3 billion budget deficit. The Senate rejected three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted before Wednesday.
"No one wants to see IOUs issued, but equally important, no one wants to see us continue to avoid the problem," said California Senate Minority Leader Dennis Hollingsworth, reported the Los Angeles Times.
In Illinois, the drive to come up with a state budget broke down completely, leaving the state without any plan for paying its employees or delivering government services. The session ended without any firm plans to return or even for Gov. Pat Quinn and legislative leaders to resume negotiations.
In Pennsylvania, Gov. Ed Rendell said Tuesday night he didn't think an agreement with lawmakers would come soon. The state faces the prospect of not being able to pay state employees if they cannot resolve an impasse.
Arizona, Indiana, Ohio, Connecticut and Mississippi also were among the other states that raced against the clock to pass budgets but were able to avoid, at least temporarily, crippling consequences.
The Ohio House voted in favor of a seven-day spending plan that will allow the state to keep operating while budget talks continue.
Connecticut Gov. M. Jodi Rell signed an executive order to keep the government running without a two-year budget in place.
Arizona House lawmakers approved nine bills late Tuesday to implement most of a compromise budget negotiated with Gov. Jan Brewer.