State Budget:
Big Revenue Shortfall Likely From Incorrect State Estimates of Facebook Stock Price

The 2012-13 budget is facing the potential of a revenue shortfall of "hundreds of millions" of dollars due to the state's overly optimistic forecasts of Facebook stock value when developing revenue estimates for the May revision, according to an August 1 pronouncement from the legislative analyst. Incredibly, the Department of Finance does not have immediate concerns, according to department spokesman H.D. Palmer, as the forecast was for the stock's November price.

According to the legislative analyst, the administration's personal income estimates in the May revision (which were used to determine if the June budget was balanced) were significantly dependent on the Facebook IPO. Approximately 20 percent of the estimated state personal income growth in 2012, and 1 percent of all personal income in the state, was expected to be related to Facebook. Finance Department estimates assumed a $35-per-share Facebook stock price in November, and the analyst assumed a $45-per-share price within six months of the initial public offering.

As of August 9, the price of Facebook stock was $21.01 per share, far below official state estimates. Jason Sisney, a tax expert in the analyst's office said, "Given where the price is, and that it's been weak recently, it's one of the risks that's out there." (Sources: "Summary of LAO Findings and Recommendations on the 2012-13 Budget," Legislative Analyst's Office, August 2; The Sacramento Bee, August 2.)

August 10, 2012
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