California Controller John Chiang said the state's budget crunch could force him to delay tax refunds and other planned expenditures.

The move is aimed at preserving cash flow as the state faces a $42 billion deficit. Chiang plans to use the money to fund education and repay outstanding debts. "For months, I have warned state leaders that our cash flow will be in serious danger this spring," he said in a statement. "Without corrective action from the governor and legislature, there is no way to make it through February unscathed."

California's eroding revenues have left virtually no money in the state's general fund for the past 17 months, and the state has been paying its bills by borrowing internally from special funds and from Wall Street. Chiang estimates those funds will soon be exhausted, and the state will be at least $346 million short in February.

To preserve cash for education, debt service and other payments required by the state constitution, federal law or court rulings, the controller will begin delaying payments for 30 days to all other programs that are funded out of the state's depleted general fund.

The delayed payments include tax refunds for individuals and businesses that overpaid their 2008 taxes, as well as thousands of claims by businesses for services and products they provide to the state. Also delayed will be assistance to more than 1 million aged, blind and disabled Californians to pay for rent, utilities, or food; along with disbursements to state agencies to fund public services ranging from public safety to health and welfare.

"I take this action with great reluctance," said Chiang. "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 urged Governor Arnold Schwarzenegger and the legislature to agree on a plan to bridge the state's cash and budget deficit. "If no corrective action is taken by the governor and legislature, the controller may have to extend delays in payments, or issue IOUs," he said.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access