Tax Refunds Now on Hold in California

ABC News' Teddy Davis Reports:

ABC News has learned that tax refunds are now on hold in California for the first time in state history, according to the state controller's office.

"Unfortunately, we have asked the California Franchise Tax Board not to send over tax refund claims beginning today because we will not be able to process them and have them out the door by Feb. 1 when a 30-day delay in tax refunds goes into effect," Hallye Jordan, spokeswoman to California State Controller John Chiang, tells ABC News.

During the 30-day delay, the controller's office estimates that a combined 2.74 million California individuals and businesses will have their tax refund delayed.

The controller's office estimates that the delay in tax refunds will free up $1.99 billion over the next month to pay for education, debt service, and other payments that legally have first claim to state funds.

California has had no money in its general fund for the past 17 months, and has been paying its bills by borrowing from Wall Street and special internal funds.

If the state's legislators and governor do not reach a budget agreement that brings immediate funds into the state's coffers, the state's borrowed funds will be entirely exhausted at the end of February, according to the controller's office.

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