California’s legislator has started to rely increasingly on capital gains revenue coming in from initial public offerings. These are one-time events where a privately held company decides to start selling stock publicly for the first time. Insiders are usually given a bunch of stock, and after trading opens they typically start selling it off, incurring capital gains.
Why is this a problem? No new tech companies means no new money. Unsuccessful IPOs means less money. That’s the general issue. The specific one is that California planned on spending the windfall from Facebook’s IPO last year … and Facebook hasn’t maintained its price, so capital gains tax revenue is coming in too low.
Aides to Democratic Gov. Jerry Brown last week lowered their estimate of how much revenue the state will get from Facebook's initial public offering by nearly one-third, to $1.3 billion in the three years ending in June 2014, down from $1.9 billion.That’s actually a markdown from the markdown. Initially they expected $2.5 billion. But … the last paragraph says not to worry:
Still, the Facebook IPO is expected to have a relatively small impact on the budget as a whole. In the three fiscal years ending in June 2014, the state expects revenue of $281 billion.Don’t believe it. I’ll give you an example. The shortfall is 1.2 out of 281, or about 0.4%. How would you feel if you lost that much out of your income? SUU Professors’ salaries are public information, so using mine (about $80K) that’s like losing $350 in cash. Do ya’ think I’d notice that sort of thing? You’d better believe it.
Read the whole thing, entitled “California Budget Hurt by Facebook's Stock-Price Slump” in the January 17 issue of The Wall Street Journal.
P.S. Why didn't anyone tell me I wrote "hear" instead of "here" in the title? That mistakes was up there for over 3 weeks.