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Prolonged Facebook slide could hurt California budget

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POSTED May 22, 2012 9:06 p.m.


 

SACRAMENTO  (AP) — California's budget could take a hit if Facebook's stock price keeps sliding.

Gov. Jerry Brown previously estimated the state would generate between $1.4 billion and $1.9 billion over the next 13 months from taxes related to sales of Facebook stock. The estimate was based on a price of $35 a share.

Facebook went public Friday at $38 a share but closed at $31 on Tuesday.

Last week, the nonpartisan Legislative Analyst's Office warned that a number of uncertainties could cause the state's deficit to be several billion dollars higher or lower than the governor's $15.7 billion estimate.

"The potential hit from Facebook's share price is nothing compared to the potential damage from a broader stock slump," Deputy Legislative Analyst Jason Sisney said.

The budget analyst pegged tax revenue from Facebook stock sales between $1.6 billion and $2.1 billion through mid-2013. The higher estimate is dependent on whether voters pass Brown's tax initiative in November.

The Legislative Analyst's Office used Facebook's IPO price of $38 a share and projected it to grow to $45 after six months.

Brown's finance spokesman H.D. Palmer said it's too early to tell how much the sagging stock price will impact state taxes given that Facebook has only been trading for three days.

Moody's Investors Services warned that the state's credit rating could be lowered if the Legislature fails to enact a budget by its June 15 constitutional deadline or if lawmakers pass "a budget that moves further away from structural balance or if the economy deteriorates."

Earlier this month, Brown proposed a combination of tax hikes and additional social service cuts to balance the budget. Democratic lawmakers who control the Legislature have said they do not want to cut as deep as the governor proposed.

 

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