SACRAMENTO, Calif. — What’s good for Facebook and its employees could be very good for California’s treasury.
If the Menlo Park company goes public this year, as many have speculated, the state stands to reap hundreds of millions of dollars in capital gains taxes 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.
In calculating how much revenue the state can expect in the next year or so, the nonpartisan Legislative Analyst’s Office released a report that considered historical income trends but also budgeted for a revenue bump on the assumption that Facebook and some other California companies will go public.
An initial public offering from the Silicon Valley social networking giant is the most anticipated, with the legislative analyst saying the company could issue $10 billion worth of stock. California taxes the capital gains from stock sales.
“In the coming months, the state’s revenue forecast will need to be adjusted somewhat to account for the possibility of hundreds of millions of dollars of additional revenues related to the Facebook IPO,” Legislative Analyst Mac Taylor wrote in the analysis of Gov. Jerry Brown’s budget proposal, released Wednesday.
Democrats are already using the so-called Facebook effect to delay the governor’s proposed cuts to social programs.
“It’s just another reason why we should not make consequential decisions … before we know,” Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, told reporters Thursday.
Mr. Taylor cautioned that the performance of the overall stock market could play a larger role than any single initial public offering, no matter how successful, depending on whether the market has an unusually strong or weak year.
“We caution that it will be impossible to forecast IPO-related state revenues with any precision, and it is likely that little information about the state revenue gain from the Facebook IPO will be available before investors file tax returns in April 2013,” the report stated in a section titled “The Facebook Effect.”
The Brown administration did not calculate higher revenue based on the assumption that Facebook will go public, said Mr. Brown’s finance spokesman, H.D. Palmer. But the Democratic governor is counting on a prosperous year for the wealthiest California residents, estimating $56 billion in personal income taxes for the fiscal year that starts July 1.
The legislative analyst has a lower projection, estimating the state will raise $53.1 billion from personal incomes taxes in that same period. 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.
California, where budget revenue slides up and down with changes in capital gains and stock options, has in years past benefited from outsized income-tax filings from a relatively small number of tech executives to help balance its budget.
• AP writer Garance Burke contributed to this report.
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