Taxpayers who filed state returns in January and February will get their refunds this month instead of having to wait until July.

Gov. Linda Lingle said yesterday that she would release most tax refunds sooner than expected because revenue collections have improved as the state's economy improves.

Lingle had delayed tax refunds from April until July to temporarily save $275 million and help the state get through the fiscal year.

"It's good to have some good news to report," Lingle said at a news conference at the state Capitol.

Taxpayers who have direct deposit will get their refunds as soon as Friday. The state will start to mail out refund checks on May 28.

Lingle said she would release $125 million worth of tax refunds, or about 60 percent of the $207 million in claims filed so far. She said the state will monitor cash flow and determine whether to release additional refunds before the July 20 deadline set by state law.

Under state law, the state has 90 days to release tax refunds but typically sends out the money shortly after the filing deadline in April.

The governor asked people not to telephone the state Department of Taxation to ask about the status of their refunds because it could slow processing. She said she did not file her own tax return until April and will have to wait like other late filers for any refund.

Roy Vierra, a surf shop owner and surfing instructor, said he recognizes the state's budget crisis but wonders why the state is not as understanding when it comes to taxpayers who are late filing their returns.

"They didn't say, 'We're going to be late paying out, so you guys can be a little late paying in,' " he said. "That never was said."

REVENUES DOWN 1%

State revenue collections are down 1 percent from last year through the first 10 months of the fiscal year. The state Council on Revenues has estimated that revenue collections would fall 2.5 percent. The council is scheduled to meet on May 27 to update the state's revenue forecast.

"The revenues are improving," Lingle said. "I'm happy to be able to report this, and I wanted to thank the people all across the state for the patience that they've shown during this time as we tried to both meet our obligations to have a balanced budget, to be conservative in how we budget, but also try to get their refunds out as quickly as we could."

State Rep. Marcus Oshiro, D-39th (Wahiawā), the chairman of the House Finance Committee, was initially critical of Lingle for delaying tax refunds.

But state lawmakers, like Lingle, decided that the delay was better than deeper state spending cuts or higher taxes to help close a $1.2 billion budget deficit through June 2011.

DELAY IN 2011, TOO

The state budget's projections assume that the next governor will also delay tax refunds next year. The new governor also has the option of releasing the refunds sooner if the economy continues to improve.

State lawmakers also passed a bill that would require the state to pay interest on tax refunds not released within the 90 days required by state law.

Lingle has until July 6 to sign, veto or allow the bill to become law without her signature.

"I think it's a good sign," Oshiro said of Lingle's decision to release tax refunds. "It's a positive sign that the economy is turning around."

Lowell Kalapa, president and executive director of the Tax Foundation of Hawai'i, called Lingle's move political. He said she should have released the tax refunds sooner.

"When you look back on it, sure it looked really dour and depressing when she announced she was going to hold, but when you think about it, if that money had been back in the economy maybe we would have pulled out of this quicker," Kalapa said.

"While she is not running for office, there are others in her party that are certainly running for office," Kalapa said. "And it would look pretty good that the Republican governor has said, 'Oh, my poor souls out there are starving because they're not getting their refunds, and therefore I'm going to refund the money.' "