California watchers have their eyes on December, when cuts could be triggered if the budget is more than $1 billion out of balance.
What could prevent the triggers? A big surge in revenues -- big enough to move projections by the legislative analyst and the governor’s department of finance high enough that the triggers won’t be pulled.
But from where would such a surge in revenues come?
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Specifically, a surge of revenues from successful Silicon Valley companies who recently had successful initial public offerings (IPOs). Employees typically must wait a while to sell their stock
The first company to watch is LinkedIn, whose employees can begin selling their stock – and thus paying taxes on their capital gains – on Nov. 21. The Wall Street Journal reports that on that day, some 94 million shares will begin to be freed for sale.
Accoring to the current stock price, the value of those shares is more than $8 billion.
State taxes on the gains could run into the tens of millions -- perhaps the hundreds of millions -- of dollars. That’s probably not enough by itself to change budget projections in a significant way, but other companies – including Pandora Media in mid-December – are to follow.
Next year is expected to bring the lucrative Facebook IPO.
The state should treat these as one-time revenues for budget purposes. One reason why California’s budget took a nosedive in the last decade is that the state juiced spending during the late 90s technology boom, treating revenue windfalls as though they would be ongoing.
But today, the game is not to juice spending but stop the bleeding. A surge of revenues from Silicon Valley may be just enough to limit cuts, at least for a while.
Keep an eye on the stock prices of newly public tech and Internet companies – the future of the budget may depend on how they do.