Income tax refunds due hundreds of thousands of Californians who claimed a renter's credit are being delayed this month because the state has not set aside enough money to pay them.
In a development that suggests a dramatic rise in the number of Californians renting instead of buying homes, state finance officials said an unprecedented number applied for the renter's credits this year, depleting funds earmarked for that purpose.
Officials said the money ran out on Wednesday, forcing them to hold up any outstanding income tax refunds that included renter credits.
Jim Reber, a spokesman for the state Franchise Tax Board, said his agency estimates that about 437,000 refund checks will be held up for weeks and possibly months because of the money shortage.
"This is not coming as a surprise to anyone except maybe the people waiting for their refunds," Reber said. "We have known for some time that it would probably happen. We just didn't know until now the exact date that we would run out of money."
The credit, established by the Legislature in 1972 to compensate renters for tax breaks afforded homeowners, is available to those who rent and occupy a dwelling in California for at least half of the tax year. Married couples filing joint returns and heads of households are eligible for credits of $120. Single filers can get a credit of $60.
If the 437,000 renters whose refunds are being delayed are typical of those applying for the credits, most are low income. Franchise Tax Board statistics show that among those receiving renter credits, 85% have adjusted gross incomes of $40,000 or less, 55% have incomes of $20,000 or less and 28% have incomes of $10,000 or less.
"Typically, it benefits poor and working-class people," said Richard Rothschild, a lawyer for the Western Center on Law and Poverty in Los Angeles, who has represented poor people in legal cases involving the credit.
Cynthia Katz, an assistant director in the state Department of Finance, said the state was caught short this year in paying the renter credit because legislative budget writers underestimated the number of people who would be applying for it. Katz said the Legislature, basing its projections on past trends, had figured on a 4% increase in applications for the credits, while the state instead got hit with nearly a 10% increase. As a result, she said, the $481 million appropriated for renter credit payments fell short for the fiscal year by $95.8 million. The fiscal year ends June 30.
Last year the state was also shy of funds to pay renter credits but did not actually run out of money until June 2. This year it happened on May 15.
Katz said officials have not explored the reasons for the sudden increase in renter credit filings and can only guess at the cause.
"With housing becoming more and more expensive and consequently fewer and fewer people being able to buy, maybe more are renting, but that's pure speculation on our part," she said.
At least part of such speculation is supported by recent census data putting the median price of a house in California at $195,000--the highest in the nation and double what it was 10 years ago.
In a recorded announcement on its toll-free hot line, the Franchise Tax Board is advising people that refunds which include a renter credit could be held up until mid-July. Katz, however, said finance officials are hoping that an emergency appropriation now being considered by the Legislature will be passed quickly, enabling the board to release the checks much sooner.
"It's in the best interest of the Legislature to move this through, because starting (Wednesday) we have to start paying interest on the delayed refunds," she said. "We have asked the legislators to expedite this (appropriation) bill, and they seem amiable."
The need for an additional $95.8-million appropriation at a time when the Legislature is already facing at least a $12.6-billion budget shortage is expected to help fuel efforts by Gov. Pete Wilson and some Republican legislators to drastically reduce renter credit payments in the future.
Wilson has proposed that the credits be reduced next year to $70 for married couples and $35 for single tax filers. That would save the state $250 million. Assembly Republicans led by Tricia Hunter of Bonita, meanwhile, have proposed legislation that would save the state about $237 million next year by making the poorest of the poor no longer eligible for the credit.
Under current law, the renter's credit can be used to offset personal income taxes owed by the renter or, in the case of those who have no taxable income, can result in a straight payment of $60 or $120 from the state to the filer. Hunter's bill would eliminate the payment to people who pay no income taxes.
Both proposals have sparked heated opposition from many Democrats, particularly Senate President Pro Tem David A. Roberti of Los Angeles, and anti-poverty groups. Roberti has scheduled a rally in Los Angeles this weekend to protest the proposed assaults on the renter credit.
"Given the billions of dollars in tax benefits that homeowners like myself enjoy, it's obscene to target the meager scrap that renters receive and in particular what poor renters receive," said Rothschild, the Center on Law and Poverty lawyer.
Wilson has defended his proposed reductions by saying they would bring the renter credit more in line with the average $70 that homeowners save through the $7,000 homeowner's property tax exemption.
Renters Tax Credit Delay
Californians who rent houses and apartments are entitled to a $60 state income tax credit for individuals and a $120 credit for married couples and heads of households. State tax officials estimate that 437,000 renters' tax returns are being held up because of a $96-million shortfall in funds appropriated for the renters tax credit. Here is a look at the state's program:
Fiscal Renters Funds Allocated Total Tax Deficit Year Claiming for Tax Credit Credits Tax Credit Granted 1990-91 5.9 million * *** $481 million $577 million $96 million 1989-90 5.0** 490 523.9 33.9 1988-89 5.1 490 490.0 0 1987-88 4.9 475 481.7 6.7 1986-87 4.8 475 475.0 0 1985-86 4.7 455 459.6 4.6 1984-85 4.6 447 447.0 0 1983-84 4.4 464 464.0 0 1982-83 4.4 440 444.2 4.2 1981-82 4.3*** 425 425.0 0
* Includes some retroactive credits, which stem from a 1989 ruling that effectively allows welfare recipients to receive past head-of-household renter tax credits.
** Some of 1989-90's refunds were processed the next year because of the state budget freeze.
*** Tax board estimates
SOURCE: State Franchise Tax Board
Compiled by Times researcher Michael Meyers