California Controller John Chiang will begin delaying tax refunds and some welfare payments tomorrow.

Chiang told the Franchise Tax Board on Tuesday to halt tax refunds because the state faces a cash-flow crisis as a result of a two-year, $41.5 billion budget deficit that lawmakers and Gov. Arnold ­Schwarzenegger have been trying to close since early November.

“On Feb. 27, the state will be $347 million in the red,” said spokesman Garin Casaleggio. That’s when California will have more bills coming due than available cash to make payments.

The Democratic controller is conserving cash for priority payments such as school aid and debt service, he said. In addition to holding back on tax refunds, Chiang will hold back payments to counties for public assistance and to the disabled on Supplemental Security Income.

Caseleggio said the federal government has agreed to make the full SSI payments, but the state will have to repay the money.

Chiang announced Jan. 16 that he would have to delay payments and consider issuing IOUs if lawmakers didn’t solve the budget impasse. Lawmakers continued to negotiate a plan this week.

The three major rating agencies have all downgraded some of the state’s debt in the past two months, and all have negative outlooks on the state’s A-plus/A1 general obligation credit rating.


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