Delaying Hawaii’s Tax Refunds Seen as a One-Time Deal
When Gov. Neil Abercrombie announced that he wouldn’t be delaying tax refunds this year, it might have sounded like a major departure from the policy of his predecessor.
But actually, Abercrombie’s hands were at least partly tied. Lawmakers in 2010 clamped down on any governor’s ability to do what former Gov. Linda Lingle did that year, by requiring all returns to be paid out within 90 days of their filing date.
Perhaps even more important, said a member of the House Finance Committee who’s also an accountant, is that the trick would have had less of an impact than it did the first time if Abercrombie had tried to repeat it.
It’s complicated, but here’s how Rep. described Abercrombie’s option.
“If you visualize this in a timeline, the delay works for the initial year, but there’s no impact if it’s done for a second year,” he told Civil Beat. Choy is vice chair of the House Committee on Economic Revitalization, Business and Military Affairs and a member of the House Finance Committee.
“If you delay, then pay out, then delay again, theoretically, you’re delaying the first year continually, it keeps getting pushed forward.” he added. “And, if you take refunds away, most people will lower their withholdings.”
Lingle used the tactic to help plug a hole in the state’s budget by shifting revenue growth into the 2010 fiscal year at the expense of the 2011 fiscal year. While she was criticized for it, the trick seems to have had its intended effect: the state saw a higher general fund balance for the budget year ended June 30.
Abercrombie on Dec. 20 to lawmakers that carries a $772 million shortfall in revenues over the next two fiscal years.

The governor said new revenue would come from “retooling,” “reconfiguring” and “restructuring” the budget. Deferring tax refunds was taken off the table. (He also said he won’t raise taxes and will put an end to furloughs, but that’s another story.)
When Lingle submitted what she called a “balanced” financial plan in December 2009, it included in anticipated state tax refunds until July 1, 2010. The move was intended to help with a $721 million budget shortfall for that fiscal year.
Lingle’s plan for a “balanced” budget included in anticipated state tax refunds until July 1, 2010. It was intended to help with a $721 million budget shortfall for that fiscal year.
But as the state’s economy started to rebound, the Lingle administration announced in May that it would begin paying refunds to early filers, those whose refunds were processed in January and February 2010. Those refunds amounted to about $125 million. The remaining $150 million in refunds was issued in June and July.
Lingle’s decision to delay refunds was credited with raising the general fund by 3.9 percent this summer. Taxpayers typically infuse their refunds back into the local economy through spending. But the move also dragged down revenue growth for the fiscal year we’re currently in.
The Council on Revenues is projecting a 3 percent year-over-year increase in general fund tax revenues for the current fiscal year, which ends next summer. The group previously had been expecting about 6 percent growth, but adjusted their forecast lower in part because of the delayed refunds.
“In rough proportions, the refunds delayed in June 2010 and subsequently paid out in July 2010 meant that 4 percentage points of revenues that otherwise would have accrued to the general fund in FY 2011 did so in FY 2010, reducing the FY 2011 revenue growth rate from around 6 percent to around 2 percent,” Paul Brewbaker, chairman of the Council on Revenues, wrote in the group’s September 2010 forecast. “The same 4 percentage points of revenue growth appear in the FY 2012 forecast change, from around 6 percent to around 10 percent.”
Hawaii wasn’t alone in taking longer than usual to make refund payments. It was one of at least six cash-strapped states that delayed refunds to help balance budgets. (The others were Alabama, Iowa, North Carolina, Rhode Island and New York.)
The move prompted Hawaii lawmakers to , requiring refunds be issued three months after taxpayers file returns, rather than within three months of April 20, the state’s filing deadline. Anything past the 90 days will incur interest. Previously, the state could hold onto refunds until July for those who file on time and even longer for those who file late.
