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Saturday, May 18, 2013
Facebook fail could hit Sacramento
by Melissa Corker, published on August 3, 2012 at 8:33 AM
Storyline: Politics
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Local state workers might want to trade keeping an eye on their Facebook status with keeping an eye on Facebook stock in the next few months: The state budget stands to lose hundreds of millions of dollars if Facebook stocks continue to plunge, and – for an area where government is one of the largest employers – that could mean trouble for Sacramento down the road.
State legislators predicted California would rake in millions from the sale of Facebook stock, but that hasn’t happened, and the Legislative Analyst’s Office says the state’s budget stands to lose big if Facebook stock prices don’t see a turnaround by November.
Mike Rosenberg reports in the Contra Costa Times that Gov. Jerry Brown and state lawmakers in June “approved a $91 billion budget that included $1.9 billion in expected tax revenue from Facebook employees striking it rich – a rare projection that helped stave off cuts to schools and programs for the sick, poor and disabled.”
“This year's state budget relies on the stock price at $35 a share, adding about $1.5 billion to the treasury,” Nannette Miranda, ABC news, reported yesterday. As of this morning, Facebook stock is hovering at just $20 a share, a plunge from the stock’s opening rate of $38 a share.
The potential funding loss from a “Facebook effect” on the state budget could mean additional cuts by the end of the year, and schools and social programs that barely made it through the first part of the budget cycle may not be so lucky next time.
State workers are already feeling the pinch from a 5 percent pay cut by way of a mandatory furlough day, and local school districts are in danger of significant hits if state budget losses end up setting off “trigger cuts” waiting in the wings.
Still, California may hold out a little hope. After all, Facebook isn’t the worst IPO in its first 49 days of trading: USA Today says that award goes to Vonage, which plunged 62 percent from its $17 a share starting price in May 2006.
Melissa Corker is a staff reporter for The Sacramento Press. Follow her on Facebook and on Twitter @MelissaCorker.
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And there lies the lack of wisdom in the state capital, counting eggs before they hatch. Putting that much reliance on any one business to help balance a state budget just screams folly and surely it's proven itself out.
This title really misses the mark. The Facebook IPO was not a "failure" by any measure. The IPO raised $15B in operating capital for the company, which the company will use for years to develop new products, expand their business, and hire more employees.
Analysts and investors are a bit sour on Facebook right now since they (obviously) hoped for the $38 offering to take off like a rocket. But like most IPO's, time will tell whether Facebook develops into a good business and a good investment.
But labelling Facebook a "fail" because it didn't deliver on a very politicized state tax revenue target? Really?
A more accurate title would be "Governor & Legislature Approve Over-Optimistic Budget... Again".
NOT confiscating property from citizens is considered a loss in California.