California News

Can Facebook save California from budget woes?

Thursday, August 02, 2012

In a stunning fall since its IPO in May, Facebook shares closed just above $20 on Thursday -- a record closing low compared to the opening price of $38 on day one.

Wall Street is concerned about the social network's expenses and whether the company can grow or even hang on to its users, given how awkward Facebook is to use on mobile devices.

"With a huge push towards mobile computing, there's some concerns that there could be some user loss or not as rapid of growth on Facebook due to the clunkiness of using Facebook in a mobile-type setting," said Joe Eschleman, a Wells Fargo Advisors managing director.

Facebook's plummeting stock price is sending shivers around the state capitol. This year's state budget relies on the stock price at $35 a share, adding about $1.5 billion to the treasury. But the price's plunge was enough for the state Legislative Analyst to warn that hundreds of millions of dollars may now not come in.

But Republicans have been sounding the alarm for months, saying you can't put a spending plan together that relies on the whims of the stock market.

"This is not the time to be looking at revenue that's phantom, that may or may not show up," said St. Sen. Ted Gaines.

But the Brown Administration says there's plenty of time for the stock to regain some ground. They're eyeing November, when Facebook employees can buy more stock and have to pay to a tax to the state on the difference between their low insider price and the stock market price.

"It's not where it is today. It's where it's going to be in November that counts," said H.D. Palmer with the California Department of Finance. "Yes, there's a downside risk that the share price could be lower and that could affect our estimate. It also could be higher."

The way things have been going, though, critics say schools and social programs should brace themselves for the reality that Facebook might not save them.

"I think we'll be looking at additional cuts in the budget by the end of the year," said Gaines.

The Finance Department also points out that the budget does not rely on the capital gains tax when Facebook shares are sold at a profit. That could actually boost state coffers.

(Copyright ©2014 KABC-TV/DT. All Rights Reserved.)

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Tags:
budget, economy, jerry brown, facebook, california news, nannette miranda
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