Local News

Dwindling tax collections put N.C. in cash crunch

Posted March 6, 2009 7:07 p.m. EST
Updated March 6, 2009 7:27 p.m. EST

— Like many cash-strapped homeowners and businesses in the recession, North Carolina is trying to ensure its spending matches its income.

The balancing act has caused headaches for many taxpayers awaiting their state tax refunds. WRAL News reported Thursday that the state Department of Revenue is taking longer this year to issue refund checks so that it maintains a positive cash flow.

"We're living in historic times with regard to our economy and our state's budget," State Controller David McCoy said Friday.

With unemployment lines growing and people curbing their spending, income, corporate and sales tax collections have slowed, McCoy said. In January, for example, personal income tax collections were down 21 percent from a year ago.

Because the state doesn't have enough General Fund cash to pay its workers and bills, it's pulling money from savings or reserve accounts, McCoy said. Officials resorted to similar tactics during downturns in 1992 and 2001.

"When you're at the zero line," McCoy said, referring to the difference between a positive and negative cash flow, "you have to pay very, very close attention to make sure that you don't put the state in a circumstance where it's obligations are not being met."

McCoy and Secretary of Revenue Ken Lay said taxpayers would eventually get their refund checks, but the assurances don't sit well with taxpayers who say they need the money as much as the state does.

"Money is money. It's my money," said Nick Brown, who recently bought a house in Johnston County.

Brown and his wife, Niya, filed their tax return in January, and they were depending on their $600 state refund to help them with expenses.

"We have a [portable storage unit] coming. We have to furnish a refrigerator that doesn't come with the house," he said. "I know $600 is not a lot to some people, but to me it is."

WRAL.com has received more than 145 complaints from taxpayers since first reporting the refund delay. One person wrote, "People's homes, cars, food and medicine depend on it." Another said, "This isn't your money and never was."

Niya Brown said she has called the Department of Revenue and gone online but has been unable to get any answers about the delay.

"If you could call the Department of Revenue and speak to a representative instead of an automated line, that would help," she said.

McCoy said he expects tax collections to increase closer to April 15, and he said state budget moves would replenish the General Fund.

"To my knowledge, we are not holding any bills past what the statutory requirement is to pay," he said.

An investment banker with Barclay's Bank and North Carolina State University economist Mike Walden said the state's cash-flow crisis is a troubling sign. It highlight the state's larger challenge of filling the ever-growing budget deficit.

The latest projections call for the deficit to hit $2.2 billion by the end of June and to top $3 billion in the 2009-10 fiscal year.

Gov. Beverly Perdue and state lawmakers say everything is under consideration, including deep cuts to state spending, possible furloughs and layoffs of state workers, salary reductions and tax increases.

Revenue officials declined to say how many refund checks have been delayed. Spokeswoman Kim Brooks said the state would eventually owe taxpayers interest on overdue refunds, but she declined to say when interest would start accruing.

Meanwhile, McCoy said officials are trying to collect more than $1.8 billion in money owed to the state, including outstanding student loans, unpaid permits and hospital bills.