Paterson: State income tax refunds may be delayed

ALBANY - Some state income tax refunds will likely be delayed if state leaders fail to adopt a budget by the April 1 deadline, Gov. David A. Paterson said Thursday.

The governor vowed to withhold $500 million in refunds until early April as part of a larger plan to forestall New York from running out of money on March 31, the end of the current fiscal year. The 2010-11 budget would close this year's deficit and next year's, which total more than $8 billion.

A spokesman for Paterson's budget office estimated "hundreds of thousands" of taxpayers would receive refunds a couple of weeks later than normal. Last year, New York paid $6 billion in refunds to 6.5 million households.

The affected taxpayers will likely be those who file returns in the first half of next month, the spokesman added.

Paterson acknowledged the "inconvenience" to taxpayers but said the state doesn't have the money to pay all of its bills next month, which total an estimated $20 billion.

"The reality is that if we get in this situation in March and they don't close the deficit we would probably have to withhold . . . tax refunds," Paterson told WOR radio in Manhattan. "I don't want to do this."

He added that he dreads repeating the events of December, when he withheld $750 million in state aid to schools, cities and counties after the legislature failed to completely close the latest 2009-10 deficit.

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.

Since the early 1990s, the state has capped the amount of refunds paid before April 1 to avoid running out of money. That cap is now $1.75 billion, but will have to be lowered unless the treasury receives an unexpected surge in tax collections.

Lawmakers criticized Paterson, saying there were alternatives to withholding tax refunds.

"He's playing politics with people who desperately need the refunds and I think that's deplorable," said Assemb. Marc Alessi (D-Shoreham).

State Sen. Dean Skelos (R-Rockville Centre) agreed, saying families were already squeezed by the discontinuation of STAR property-tax rebate checks by Paterson and the legislature's Democratic majorities.

Skelos said, "Democrats want to stick it to taxpayers once again by refusing to give back the tax refunds they deserve."