There's no denying the multibillion-dollar budget gaps roiling state governments from Albany to Sacramento. But are reports of possible state income tax refund delays exaggerated?
At least a half dozen coffer-barren states, including New York, were reportedly considering freezing refunds as a way to offset cash flow problems, according to a story published Friday in USA Today, and which was picked up and displayed prominently by the Drudge Report, as well as by ABCNews.com. A similar state tax refund delay story ran earlier in the week on CNBC.com.
But officials in New York insist that while there is currently a halt in the issuing of state refund checks, it is only for two more weeks, and only because the state cannot issue any more refunds until the new fiscal year starts on April 1.
By law, the state can only pay out a maximum of $1.25 billion in individual refunds in the current, 2009-2010, fiscal year, and that the cap, lowered by $500 million earlier this year, was reached.
"On April 1, we'll release that $500 million to around 700,000 individuals, with no other delays after that," Brad Maione, a spokesman for the New York State Department of Taxation and Finance told ABC News.
A spokesman for New York Gov. David Paterson's budget office explained that the idea of further delaying the payment of that $500 million had been considered as a way to free up cash to close a $9 billion budget shortfall, but the governor withdrew the idea. Paterson's spokesman deferred to Maione who stressed the refund money will be released April 1, as planned.
Meanwhile, in California, which currently faces around a $6 billion budget gap, the state controller, John Chiang, said earlier in the week that state tax refunds would not be delayed this year. California was forced to delay refunds last year.
Only four states, Alabama, Hawaii, Kansas and North Carolina have expressly indicated that tax refunds will or could possibly be delayed, according to Sujit CanagaRetna, senior fiscal analyst at The Council of State Governments.
Nine states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Interviews with spokespeople and officials at many of the largest state taxation departments – including in states facing the most significant budget gaps – revealed a much less gloomier picture.
Georgia, Illinois, Louisiana, Michigan, Minnesota, Pennsylvania, and Virginia are among the states insisting that there are currently no plans or expectations for any tax refund delays.
"We're actually sending out electronic refunds faster than ever," explained Stephanie Weyant, a spokeswoman for the Pennsylvania Department of Revenue.
"Last year there were some delays as a result of some staff reductions but we've added temporary workers to make sure refunds are sent out on time," said Bert Brantley, a spokesman for the Georgia Department of Revenue.
One reason states are reluctant to delay refunds is interest payments which can often kick in 90 days after the April 15 deadline.
Last year, for example, Georgia eliminated hundreds of second and third shift tax refund preparer positions to save $12 million and ended up having to pay $2 million in interest payments as some residents waited until September for their checks, Brantley explained. "It caused an uproar so I think state officials decided not to have a repeat of that."
Georgia faced a $4 billion budget gap for fiscal year 2010, compared to 2009, but that has been narrowed over the course of the past several months mostly by a reduction in state jobs.
New York State Sen. Liz Krueger, vice chair of the state Senate's finance committee, said she's not surprised to see Paterson's idea to delay tax refunds come off the table, despite a $9 billion shortfall between the fiscal year about to begin April 1, and fiscal year 2011-2012. "The state's budget problems are real, they are big, but delaying money we owe to hardworking taxpayers is not the first place we need to be looking."