Facing an unexpected budget crunch, Missouri officials have stopped mailing refund checks to taxpayers who are owed refunds from their 2001 income tax returns. Nearly two-thirds of refunds checks had already been mailed when the state realized how large its budget deficit is. With a fiscal year-end approaching on June 30, the state is $200 to $250 million in the hole. Approximately $167 million in refunds are being held back to help patch that hole.

The state will be required to begin paying interest at 6% on refunds not processed by August 15. "The state is experiencing serious financial problems, and we will send out the refunds just as soon as it's possible," said Missouri Budget Director Brian Long. State officials are not yet certain of when the remaining refund checks will be sent. "I don't think we'll wait till fall," was the best estimate Mr. Long could provide.

Other states are experiencing difficulty in processing refund checks as well. Illinois taxpayers are waiting an extra two weeks for their checks, and Alabama has temporarily suspended payment of corporate tax refunds.

States are discovering that tax collections this spring are lower than estimated while refunds are higher. Factors affecting the situation are a direct result of the economic recession. Many people worked fewer hours or at lower-paying jobs last year than the year before, and the sagging stock market resulted in lower than expected capital gains for 2001.