we see the assumptions the Governor’s finance team is making about the IPO:
“The Facebook IPO could result in about $12 billion of additional income for California residents in the latter half of 2012.”
Twelve. Billion. Dollars. Really?
The state income taxes on that alone would top $1.2 billion, enough to fill 7.5 percent of the current $16 billion deficit.We called the Governor’s office to see how it came up with that $12 billion number.H.D. Palmer from the state’s Department of Finance is basing the math on a share price of $35, which could end up being low.Stock OptionsPalmer says that based on Facebook’s filing, there are 139 million options held by employees other than CEO Mark Zuckerberg and other investors. Those will net $3.8 billion, “assuming that 80 percent of these are exercised by California residents.”
Not only is Jerry Brown’s budget likely inflating the number of Facebook employees (restricted current shareholders, option holders) residing in California, but also the number who will cash out their shares in the company during 2012 to estimate California’s tax revenue. That apparently is how they got the deficit down to “only” $16 billion.
“More problematic, however, is the assumption that so many employees plan to cash out so much before the year is out.Yes, there is a threat of a state income tax hike in 2013, but if all these workers exercised their stock options and sold billions in restricted stock as soon as they were allowed to, it would signal that insiders don’t have faith in Facebook.
In the long run, California would not “like” that at all.”
Meantime, as CNBC’s Rick Santelli tells it, that isn’t a fault line California is near.
That’s a cliff.