Calif. lawmakers cheer Facebook IPO, see windfall
Thursday, February 2, 2012
SACRAMENTO, Calif. (AP) — Gov. Jerry Brown’s administration and state lawmakers on Wednesday hailed Facebook’s much-anticipated plans for a public stock offering as a potential windfall for California’s cash-strapped treasury, while some already say the extra revenue should go to preventing cutbacks to public schools.
“If it is as big as it is being billed, then on behalf of a grateful state, I will go to Mark Zuckerberg’s house and either wash his windows or mow his lawn,” said Brown’s finance spokesman, H.D. Palmer.
In a regulatory filing Wednesday with the Securities and Exchange Commission, the Menlo Park social networking giant indicated it hopes to raise $5 billion in its IPO. That would be the most for an Internet IPO since Google Inc. and its early backers raised $1.9 billion in 2004.
California’s nonpartisan legislative analyst’s office estimates the state stands to reap hundreds of millions of dollars — perhaps more than $1 billion — in the near term from Facebook investors and employees profiting from stock transactions.
That could bring a much-needed windfall to a state government facing a $9.2 billion deficit.
Republican minority leaders Bob Huff and Connie Conway issued a statement Wednesday saying the state should use tax revenues related to Facebook’s IPO to pay for classroom needs. Under Brown’s budget proposal, the state will cut nearly $5 billion to public education if voters reject the governor’s plan to raise taxes in the fall.
“We should use this added revenue to protect our public school students from the governor’s trigger cuts and pay down the state’s debt service,” according to a joint statement by Huff and Conway.
Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, cautioned that it’s unclear when tax revenue from those reaping the benefits of Facebook shares will reach state coffers. Democrats are, however, using the so-called Facebook effect to delay the governor’s proposed cuts to social programs.
California’s general fund relies heavily on income tax and capital gains taxes, which are sure to see a bump with the wealth to be made off Facebook stock sales.
The wealthy are essential to funding California state government: The top 1 percent of income earners pay about 40 percent of all income tax, the dominant source for the state’s general fund.
“Facebook is good news for the state budget, but it will not solve the state’s near-term budget problem,” Jason Sisney, an analyst with the legislative analyst’s office, wrote in an email.
Sisney said it’s hard to predict when capital gains-related taxes will show up in the state’s coffers, especially when the timing of the offering hasn’t been finalized.
The Facebook IPO could help California reach its revenue targets for the year because the state did not assume that Facebook would go public.
Brown estimates the state will raise $56 billion from personal income taxes for the fiscal year that starts July 1. The analyst’s office gave a more conservative estimate at $53.1 billion for the same period.
While Facebook isn’t the state’s first IPO windfall, it could be its biggest.
Taxes from Google executives began flowing into state coffers in 2006, two years after the company went public. After cashing in more than 9 million shares valued at $3.7 billion that year, 16 Google insiders owed the state as much as $380 million in taxes. At the time, that was enough to cover the salaries of more than 3,000 state workers.
Facebook’s offering could be four times as large as Google’s IPO. Google’s market capitalization after its first day of public trading in 2004 was $27 billion. There has been widespread speculation that Facebook’s IPO might value the company at more than $100 billion.