ALBANY - New York has stopped paying income tax refunds until after March 31, meaning hundreds of thousands of taxpayers will have to wait an extra two weeks for their money.
Gov. David A. Paterson's budget director, Robert Megna, said Tuesday that tax refunds were suspended last Friday after they hit a $1.25-billion cap. The cap, first instituted in the early 1990s, limits refund payments to ensure the state doesn't run out of money before the end of its fiscal year on March 31.
Megna estimated the affected taxpayers are those who filed returns in late February and the first several days of this month. The average refund takes three to four weeks to be paid - but will be six weeks for the affected group.
"Those people are going to wait probably two weeks longer than they would have waited," Megna told Newsday. "We would never say that's not a burden on folks. We understand it is."
However, he and Paterson said New York faces $14 billion in bills due at month's end and is short $2.1 billion. The $500 million in withheld refunds will be used to pay other bills and then replenished once the new fiscal year begins.
To avoid insolvency, the refund payments and money owed to schools, counties, cities and social service agencies will be postponed. A similar move was made in December, involving $750 million in delayed payments.
"We have a lot of bills that come due in March; we have to make sure we have the money to pay them," Megna said.
Postponing refunds doesn't affect the April 15 deadline for filing state income tax returns.
Last year, New York paid $6 billion in tax refunds to 6.5 million households. About 1.4 million have already received refunds this year.
Tax refunds were withheld three times in the 1990s under Gov. George Pataki - between $40 million and $77 million each year out of total refunds of about $2 billion.
Paterson said Tuesday that he didn't want to delay tax refunds but had little choice with the state's financial picture worsening. Unless payments are withheld, he predicted the state's credit rating would be downgraded and the cost of borrowing money would soar.
Delaying tax refunds is sure to anger the legislature. Last month, the State Senate unanimously adopted a nonbinding resolution to oppose the move. "People have budgeted for this refund," Sen. Charles Fuschillo (R-Merrick) said during the Feb. 23 debate. "They are counting on it to pay bills."
A bipartisan coalition of lawmakers is pushing a bill that would require refunds to be paid in 30 days instead of 45. The measure is before several legislative committees.