August 3, 2012
With news of California needing to borrow $10 billion from Wall Street not even a week old, California has fruitlessly acknowledged its losses in the Facebook IPO, through which the state had hoped to raise $2 billion mostly through income tax. California has come out of the dark to admit that the company’s stock price has “fallen far below” the $35 level assumed in the state’s revenue projections. Facebook (FB) saw its stock fall below $20 for the first time on Thursday, nowhere near its $38 initial public offering price.
California did not need to directly invest in Facebook to lose from the IPO. That’s just how bad off the state is. Instead, the cash-strapped Golden State was relying on the perceived tax obligations of Facebook insiders. The state’s Legislative Analyst’s Office said in their Wednesday report that if “the lower share prices persist through November and December, hundreds of millions of dollars of income tax revenue assumed in the state budget plan are at risk.”
The state’s Legislative Analyst’s Office received consistent inquiries regarding how the Facebook IPO has affected the California state budget, and so therefore had to illuminate its knowledge of the situation, however begrudgingly. “Facebook Revenue,” the Office admits, is assumed into California’s 2012-13 Budget Plan. What is California banking on? Tax proceeds from the IPO. From the Office,