California’s Trippin’: Facebook Income Tax Hopes No Hollywood Ending For State
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,
As such, the budget assumes the state receives about $1.9 billion in 2011-12 and 2012-13 combined due to the Facebook IPO and resulting taxable income. Of this $1.9 billion, approximately $1.5 billion results from current-law income tax rates, with the remaining approximately $400 million relating to the budget plan’s assumption that voters approve the Governor’s proposed tax measure, Proposition 30, in the November election.
The erroneous assumption at the time of the IPO that Facebook shares prices would rise between May and November 2012 led to grave errors in the income projections for the IPO. Although California did not anticipate solely income from sold stock, the “stock-related transactions that were disclosed by the company in its IPO documents and scheduled to take place” have evidently been delayed or cancelled, but these played but a small part in California’s fantasy. To a much larger degree, California’s fairy tale revenue from the FB IPO was envisaged as coming via income tax, such as through the company’s scheduled settlement of restricted stock units or RSUs with current and past employees in November 2012 and after.
Why the Facebook Revenues were included in the State Revenue Estimates is not a question of policy, but instead of sanity. The immense reality of California budget shortfalls, and the Greece styled austerity measures they portend, are too much for the population, including the elected officials, to sort out in their heads. And so they insert themselves into the Hollywood movies with which they have been ambushed – psychologically tortured – and try with all their imagination to magick a Disney fairy tale in their own state. An Angels in the Outfield for politics. But, unfortunately, their childish fantasies can’t save them from the Too Big To Fail banking system, as the likes of JP Morgan and Goldman Sachs corner the state.
The release aside, the state still reserves false hope, unable to face truth in a time when truth is revolutionary:
Facebook’s IPO clearly is resulting in significant new tax revenue for the state. Accordingly, given the goal of developing an accurate revenue estimate, an effort to estimate Facebook-related revenues was necessary.
California has been hooked up to a steady cocktail of financial sedatives and painkillers and is now hallucinating in a schizophrenic haze. There’s no predicting what California may do under the stress as its Wall Street handlers control the state a la MK Ultra-esque techniques. The state assumed a $35 share price at the time of the IPO and $35 in November, when the RSU settlement activity mentioned above will occur.
The assumptions continue as the state responds to concerns regarding the risk-factor of the no-show “Facebook Revenue.” The state says that there is no problem, “assuming the passage of Proposition 30.”
The state, in the persistent, Orwellian and lofty language of California’s stargazed report, warns that policy makers – and therefore everyone – “should not be surprised if 2012-13 state revenues end up several billion dollars lower (or higher) than current projections.” That’s a supremely uncertain statement.
The Facebook uncertainties are added to a worrisome list of obstacles for California, such as volatile trends in the stock market, trends in consumer confidence as unemployment starves the lower classes, and the economic collapse in parts of Europe and Asia which pose other near-future crises for which state residents will have to concoct Hollywood-scripts, only to learn that this ain’t no Hollywood ending.