During the debate over the budget, Mayor Nutter warned that the city could run out of cash without additional revenue. It turns out that this isn't just an issue for Philadelphia. States across the country are taking desperate measures to preserve cash, including delaying sending out tax refund checks.
Hawaii initially planned to delay all tax refunds until July, when its fiscal year begins, but decided two weeks ago that its finances were healthy enough to begin sending checks to people whose tax returns were processed back in January. New York briefly postponed sending out half a billion dollars worth of refunds until its new fiscal year began in April. Rhode Island extended its tax filing deadline until May 11 to help taxpayers who were still reeling from severe floods; now the state is delaying refunds to make sure it has enough money left to pay debts coming due in June.
Why is this happening? The problem goes beyond simple cash flow -- some states are voluntarily delaying payments to preserve a healthy balance. Budget cuts to government over the past two years have also contributed to the delays.
Some states lack the staff to process returns on time. Budget cuts left Iowa's Department of Revenue without the money to hire the 50 temporary workers it usually adds around tax time. So some refund checks were slowed while nearly everyone in the department — from auditors and revenue agents to top agency officials — was directed to pitch in by opening up envelopes and processing tax returns.
Delaying refund checks does have consequences. For starters, voters tend to be angry when the money is late. Also, many states have laws that require them to pay interest on delayed payments. In fact, at least one state has already found out that delaying refunds can be incredibly costly.
Steep interest costs did not prevent Georgia from long delays last year, when its Revenue Department lost nearly 18 percent of its staff to budget cuts and found itself still paying refunds in August to taxpayers who had filed their returns by the April 15 deadline. The delay was a costly one: Georgia wound up paying roughly $2.1 million in interest to taxpayers whose refund checks were sent too late.
However, Georgia is basically the exception. Overall, delaying tax refunds has been a useful too to save cash. Speaking of cash, Pennsylvania doesn't seem to have any. So, what about delaying tax refunds? Would you be willing to wait a little longer to get your money to help the state make its payments if it comes to that?