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Delay of tax refunds and payments adds to Californians' struggles

As state withholds $3.5 billion, people and businesses scramble to fill gaps. Vendors, Cal Grants, child care services and programs for the developmentally disabled are among those affected.

February 01, 2009|Patrick McGreevy and Jordan Rau

SACRAMENTO — Wendy Hansen, a 52-year-old single mom in Monrovia, says she cannot afford a delay in her anticipated state income tax refund of $1,800.

Without the check, Hansen said, she will have to put off debt payments, long-needed repairs on her house and treatment for a back problem that she believes has been aggravated by stress over finances.

An estimated 2.7 million Californians expecting income tax refunds this month won't receive them for now, because the state's prolonged budget impasse has emptied its treasury.

"It's horrendous," said Hansen, an office manager for a doctors' office. "I'm someone who counts on that refund every year to make ends meet."

State Controller John Chiang's decision to conserve cash by withholding nearly $2 billion in tax refunds, among other scheduled payments, starting today means thousands of people and businesses that rely on state money will not be paid as usual.

With Chiang delaying for at least 30 days a total of $3.5 billion in state payments, county welfare agencies and universities are scrambling to make up the difference. They're trying to avoid interruption of tuition grants for students, child care for poor families, services for the disabled and treatment for Californians with mental health and drug abuse problems.

But local officials say that although they can cover one month's delay in payments, they may not be able to fill in the gaps beyond February. Meanwhile, companies that supply the state with goods and services are also bracing for a painful month.

The state pays about $250,000 a month to Western Mixers Inc., a Los Angeles company that provides produce to prisons, according to Jeff Foster, a sales manager at the company. He said the firm may have to delay paying its own suppliers because it won't get that money.

The cash crunch is even hitting close to Chiang's own office: It will not be paying $240,000 it owes to a company hired to help ensure that the controller's computers and databases operate smoothly.

That company, Sacramento Technology Group, may have to put off paying its own vendors, said George Usi, the firm's president. "It can impact our credit negatively."

Usi said he has enough capital to weather delays of up to 90 days, but if there is not a resolution by then, "it will be financial catastrophe" that would force him to lay off workers.

Most of the money the controller is withholding is an estimated $1.9 billion in personal income tax refunds and $81 million in bank and corporate refunds. Last year, the personal tax refunds the state issued in February averaged $853, according to the controller's office.

Even some of those who say they will not be hurt by the delay in refunds are angry that lawmakers are gridlocked over how to solve the fiscal crisis.

"What I take offense to is that they can't come to a decision on the budget," said Bob Moore, a financial planner from Whittier who was hoping for a timely refund.

Chiang's plan to delay $13 million in Cal Grants has college students nervous on campuses throughout the state, even as college administrators say they are working on ways to make sure nobody is left out of the classroom.

"I'm extremely concerned," said Aresha Martinez, whose tuition at UCLA for the quarter that begins in late March is supposed to be offset by a $1,500 Cal Grant. "Without it, I would be strapped. I would have to try to get a private loan or transfer to a Cal State university."

Martinez, who is majoring in Latin American studies, said that her parents cannot pay for her time at UCLA and that she already had borrowed heavily to cover living expenses.

In January, the state paid universities 85% of all the Cal Grants promised for spring semester tuition. The California State University system is not asking students to make up for the other 15% right now, said spokeswoman Claudia Keith. University officials hope the state will provide the money once its fiscal crisis is resolved.

University of California officials say they are developing similar plans.

"The objective is to assure those students are held harmless," said Ronald W. Johnson, director of financial aid at UCLA.

Other payments Chiang is delaying include $280 million for services to people with developmental disabilities. But the regional centers that arrange those services say they have enough money from the state to issue checks until the end of March.

To many, March does not seem far away.

Mike Murphy, executive director of Empower, an Orange County center that provides programs for 67 developmentally disabled adults, said he would not be able to pay his 21 employees after March and then may have to shut completely.

"I feel horrible. Having to stop payments would be disruptive. There are a lot of people affected," said Murphy, whose center is in Stanton.

Raymond Whitney, 44, who has Down syndrome, said he looks forward every day to the education and work programs Empower offers, such as sorting recycled paper, which gives him a small paycheck.

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