This is a general interest topic for macroeconomists trying to understand how politicians get themselves into budget trouble.
In this case, it’s California and Facebook. The piece is an editorial, so don’t expect it to be neutral.
The problem is a pretty basic one that households with poor financial management have quite a bit, and that politicians seem to actually pursue with a vengeance. It is the use of one-time funds to finance ongoing spending.
California is again in fiscal trouble—when isn't it?—and this time it's betting on a new savior—the Facebook IPO. The state Legislative Analyst's Office reports that the $5 billion stock offering expected this year could yield $2.5 billion over the next five years in extra revenue due to "extraordinary one-time" events.
… A single business success could cover a multitude of spending sins. Isn't capitalism grand?
On the other hand, we've seen this windfall before. Recall the "Google surplus." In 2004 Google's IPO contributed to a one-time $7 billion revenue gusher that included a 49% leap in capital-gains receipts. The state was instantly flush with cash and Arnold Schwarzenegger and Democrats blew through the cash like they were Google partners—which, in a sense, they were.
It didn't last. When the temporary revenue bonanza ended, the state couldn't sustain what had become a new higher plateau of spending. The boom turned into a revenue drought that continues.
Now with Facebook and other California Internet sensations looking to go public, legislators are again counting on big paydays to finance another spending binge while avoiding the reforms imperative for long-term solvency. According to a fiscal analysis by state Assembly Republicans, Governor Jerry Brown's budget calls for a $6 billion or 7% increase in spending this year, and a 30% increase over four years.
Read the whole thing entitled “Facebook to the Non-Rescue” in the March 8 editorial page of The Wall Street Journal.