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January 21, 2009 > Calif. considers 30-day delay on state tax refunds

Calif. considers 30-day delay on state tax refunds

By Judy Lin, Associated Press Writer

SACRAMENTO, Calif. (AP), Jan 16 _ California's controller said Friday he will be forced to impose a 30-day delay on tax refunds and some other payments starting Feb. 1 if lawmakers fail to agree on a plan to erase a nearly $42 billion budget deficit.

Controller John Chiang, who acts as the state's accountant, said he will have no choice but to delay $3.7 billion in payments next month because the state is running out of cash.

Doing so, he said, would buy the state a few more weeks before its accounts run dry. The state is on the brink of issuing IOUs as it faces a $41.6 billion shortfall over the next year-and-a-half.

``Let me make this perfectly clear: This is a painful decision,'' Chiang said during a news conference in Sacramento. ``It is an action that is critically necessary. The fallout from issuing IOUs, or for the state going into default, are significant and long-lasting and something to be avoided at nearly all costs.''

A severe drop in revenue from sales, property and capital gains taxes has left the state's main bank account depleted. The state has not had a positive cash balance since July 12, 2007, Chiang said.

The state had been relying on borrowing from special funds and Wall Street investors, but those options are no longer available. Democratic and Republican legislators and GOP Gov. Arnold Schwarzenegger have been at odds for months over to fix the budget gap.

Chiang said his office must continue $6.6 billion in education and debt payments next month but will defer money for tax refunds, student aid, social services and mental health programs.

Universities that do not receive student aid payments on time might be able to find ways to keep those students in school, said Chiang's spokeswoman Hallye Jordan.

State officials hope the Social Security Administration will cover the state's share of benefits paid to an estimated 1.3 million low-income elderly and disabled Californians who receive monthly checks, she added.

``It's just an ugly situation,'' Jordan said.

Sacramento resident Sherlie Magers, 57, who suffers from bipolar disorder, said she lives off $900 a month from a disability check.

``I do not know what we will do if the state cannot make its payments,'' Magers said. ``We will not have money for food. Our gas and utilities will be cut off.''

Of the $3.7 billion in delayed payments, an estimated $1.9 billion will come from personal income tax refunds and $81 million from bank and corporate tax refunds.

Under the law, the state does not have to issue tax refunds until May 30, but the state usually cuts checks as it processes returns.

Chiang said delaying tax refunds and payments to counties for supporting poor families will only exacerbate the weak economy. People will not be able to use their tax refunds to buy cars or pay bills, he said.

___

Associated Press Writer Steve Lawrence contributed to this report.

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