Facebook share plunge may affect California budget
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E-mail Xinhua, August 3, 2012
SAN FRANCISCO, Aug. 2 (Xinhua) -- Facebook stock price plunged to an all-time low on Thursday, which may take hundreds of millions of U.S.dollars away from the budget of the U.S. state of California where the company is based.
The social networking giant's stock has been going down further after its first earnings report last week failed to cheer up investors. On Thursday, Facebook stock once dropped to 19.82 dollars, nearly half of its initial public offering (IPO) price of 38 dollars.
"If the company's stock price remains depressed, hundreds of millions of income tax dollars assumed in the 2012-13 state budget plan are at risk," said California's nonpartisan Legislative Analyst's Office in a briefing on Wednesday.
Back in May when Facebook held its IPO, California state government expected Facebook stock transactions to generate up to 1.9 billion dollars from income taxes levied on its employees, which accounts for about 1 percent of taxes California took in over the next two years.
California state fiscal officials are now anxiously waiting the arrival of November, when the so-called blackout period ends and Facebook employees can exercise stock options or sell their shares.
They had expected Facebook stock price to be around 35 dollars in November.
California Department of Finance spokesman H.D. Palmer said the state government will look at revenue projections in November, including projections on Facebook, to make adjustments to budget, noting that the entire state budget is based on revenue projections every year.
During the dot-com boom from 1998 to 2001, California raised the budget from 58 billion to 78 billion dollars as employees of technology companies got rich by selling stocks.
After Google's IPO in 2004, the state government increased spending by about 20 billion dollars in the following two years.
Local newspaper The Sacramento Bee said the "Facebook effect" highlights the volatility of California's tax system, which heavily depends on income taxes from wealthy earners who have capital gains income.
Meanwhile, some analysts said that a series of Facebook stock lock-up expiration will begin on Aug. 16, and may make more than five times the number of shares currently trading come on to the market, which could cause an even bigger drop in Facebook stock price. Enditem
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