California goes bankrupt

First, they take your money by force (via taxation) and then they renege on their promise to give you some of it back. Anyone surprised?

California may delay tax refunds

State's cash shortfall could slow payments to businesses, disabled residents

By Andrea Coombes, MarketWatch
Last update: 2:38 p.m. EST Jan. 16, 2009

SAN FRANCISCO (MarketWatch) -- Facing a severe cash crunch, California may delay sending out tax refunds, aid to needy residents, money for some state services and payments to businesses, the state's controller said Friday.

State controller John Chiang said in a press release that expected cash shortages in February "will force him to delay some critical payments next month," including money owed to businesses for services provided to the state, rent and food aid for older and disabled Californians. Money for certain state services and tax refunds for 2008 taxes will also be affected.

Payments for education and debt service have first claim on the state's general fund under the state constitution, federal law and court rulings. If state lawmakers don't address the budget situation, failing to delay certain other payments will put the state $346 million in the red in February and $5.2 billion in the red by April, the controller said. See more on payment delays on California state controller's Web site.

Governor Arnold Schwarzenegger on Thursday called on state lawmakers to close the state's steep budget deficit, expected to hit $42 billion over the next 18 months.

During this difficult economic time, the payment delays will be particularly bad news for some state residents, many of whom are likely hoping for a quick tax refund payment.

Under state law, the state has until May 30 to start paying tax refunds, said Hallye Jordan, spokeswoman for the state controller, in a telephone interview. "Traditionally the state has encouraged people to file early and get their refunds quickly. It's been more of a practice that established the quick turnaround, rather than a legal requirement," she said.

The payment delays will go into effect in February if the state legislature and governor don't address the budget issues by Feb. 1, the controller said. If the budget situation isn't rectified, people may eventually start receiving IOUs instead of their expected checks.

"For months, I have warned state leaders that our cash flow will be in serious danger this spring. Without corrective action from the governor and legislature, there is no way to make it through February unscathed," Chiang said.

"I take this action with great reluctance. I know it will put many California families who rightfully expect their state tax refunds in a desperate position. Individuals who already are vulnerable will be hit hard. Small businesses that don't get paid may have to lay off more workers. Rather than helping stimulate the economy, withholding money from Californians will prolong our pain and delay our economic recovery," he said. End of Story

Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco.

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