By Mark Huffman
ConsumerAffairs.com
March 16, 2010
If your state happens to be one that's suffering severe budget woes, should you worry state officials will hold onto your state tax refund longer than usual? Some states say no, though others concede the possibility.
From California to New York, state governments are swimming in red ink, prompting a number of news reports last week suggesting states would be unable to send out refund checks in a timely manner. USA Today even reported some states were considering a freeze on tax refunds to preserve state cash.
With taxpayers anxious over these reports, some states this week are taking steps to deny the reports and reassure their citizens. In New York, one of the states specifically cited for sitting on refunds, officials say the delay has a legal reason.
According to New York tax authorities, the state is barred by law from paying out more than $1.25 billion in tax refunds before the start of the new fiscal year, which begins April 1. Some consumers who filed early may indeed be experiencing a delay in getting their refund checks, but officials say it has nothing to do with the state's ability to pay.
But at least four other states -- Alabama, Hawaii, Kansas and North Carolina -- are considering holding onto taxpayers' refunds weeks, and even months longer, to keep from running out of money.
There's precedent for doing so. Last year California and Georgia were in such dire straits that both states delayed state income tax refunds by several months. California is still feeling the squeeze, but state officials say this year they anticipate no delay. Other hard hit states, including Illinois, Virginia, Louisiana and Pennsylvania, insist refund checks will be sent on time.
Still reeling
While many businesses have recovered from the Great Recession and are now profitable once again, nearly all state governments are still reeling from a decline in tax revenues, mainly because they didn't start cutting spending quickly enough. In many cases state governments couldn't make cuts, since some spending is mandated by law.
How bad is it? The Rockefeller Institute of Government has reported that state tax collections have declined for three consecutive quarters beginning in the third quarter of 2009, with the last three consecutive quarters showing reductions of 10.9, 16.4 and 11.6 percent. These are the largest reductions on record.
For fiscal year 2010, states enacted tax and fee changes resulting in an anticipated $23.9 billion in additional revenue. States also enacted revenue measures that will result in additional revenues of $7.7 billion for fiscal year 2010. Such "revenue measures" include tax cut deferments, fund transfers into the general fund and tax amnesty programs, according to the National Association of State Budget Officers.
Due to the revenue declines, 43 states cut $31.3 billion in 2009. For fiscal year 2010, even with nearly $30 billion in new revenue, 36 states have been forced to cut $55.7 billion, with 30 states having cut both K-12 and higher education, according to the association.
