Tax rebates start to flow, but not everyone has shopping in mind

The economic stimulus money has started to flow. The question now: Where is it ultimately headed?

The federal government on Monday began directly depositing stimulus checks into the bank accounts of about 800,000 U.S. taxpayers as part of its program designed to jump-start the nation's struggling economy.

How much of a boost the country gets, though, depends on whether the funds are spent buying goods and services – as the government hopes – or used to pay bills – as financial advisers urge.

The first wave of money goes to taxpayers who elected to have their payments directly deposited into their bank accounts. For everyone else, paper checks will start going out on May 9, based on the last two digits of Social Security numbers.

By the time the last check is sent by July 11, about $110 billion will be in the hands of 130 million households.

But don't think that everyone with a rebate check is streaming directly to the shopping mall.

"My $600 is going straight to a credit card," said Sharon Watson, an administrative technician for the Sacramento Police Department. "The last few months, I had to use my credit cards to pay some bills – gas, property taxes – and I need to pay those debts down."

Businesses, too, said they aren't expecting a big rush of customers walking in with rebate money in hand. Some U.S. retailers, including Sears and Home Depot, are campaigning to grab a share of the billions of dollars flowing to households.

Others have declined to appeal directly to consumers to spend tax-rebate money in their stores.

Rich Lawrence, president of Emigh Hardware and the neighboring Emigh's Casual Living outlet on El Camino Avenue in Sacramento, said Monday he's "sure some of those funds will flow through us."

But Lawrence said he won't be putting a hard-sell on customers.

"I just have certain feelings about marketing a refund to stimulate the economy." he said. "So, no, we won't do that."

David A. Rodgers, senior vice president and general manager of the John L. Sullivan Automotive Group in Roseville, said he came to a similar conclusion.

Rebate checks are "a difficult thing to market toward," he said. "We talked about it and thought about it, but we decided not to go that way."

Still, Rodgers, who helps oversee group dealerships that include John L. Sullivan Chevrolet and Roseville Toyota-Scion, said that rebate checks may be among several factors driving a recent spike in new-car sales at the Sullivan dealerships.

"Tax season is over, interest rates are low, and we're not feeling the credit crunch on the auto side," he said. "With people receiving their (rebate) checks, that might be driving sales a little bit."

A poll by the Associated Press-AOL Money & Finance earlier this month showed that 35 percent of those surveyed said they would use their regular tax refunds for bills and credit card payments. That was up from 27 percent a year ago.

The survey probably has it right, says Rick Hagstrom, executive vice president and chief operating officer of Tri Counties Bank, which operates 57 branches in 23 California counties.

"When you think about just two things that absolutely everybody needs, food and fuel, and you look at the percentage increase in both of those components, they are a significant increase to deal with for the average income," he said. "I think (rebate money) in many cases will be used to pay back what has already been spent. People will pay down their credit card balances and pay some bills."

Patti Casteel, a state employee with the Department of Child Support Services, is thinking about the future: She's pre-paying her garbage and water bills.

"I made my mind up when I first heard about this," said Casteel, who lives in Elk Grove. "I'm conservative in my thinking, and with summer coming, I prefer to pay these bills up front. I actually have the payment envelopes ready to go."

There is one business already benefiting from the arrival of stimulus payments and tax refunds: financial institutions.

Sacramento-based Golden 1 Credit Union has tallied "a significant deposit inflow" from the government's electronic deposits into its members' accounts statewide.

"As of (Monday) afternoon, we had already posted nearly $330,000 of such payments, and we anticipate over $3 million in such payments will post" today, said Teresa Halleck, Golden 1's president and CEO.

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