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Facebook's falling stock could be trouble for Calif.

The 'Like' sign outside Facebook's Menlo Park headquarters. (Matt Harnack/Facebook)
August 2, 2012 8:00:41 PM PDT
Facebook's plunging stock price is now sinking California's hope of keeping the state's budget above water. Gov. Jerry Brown hoped the state would get nearly $2 billion dollars in tax revenue when Facebook began trading publicly in May.

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

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 there could be some user loss or not as rapid of growth on Facebook due to the clunkyness of using Facebook in a mobile-type setting," Wells Fargo Advisors Managing Director Joe Eschleman said.

Facebook's plummeting stock price is sending shivers around the 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 Legislative Analyst to warn hundreds of millions of dollars may not come in now.

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," St. Sen. Ted Gaines, R-Roseville, said.

The Brown Administration says there's plenty of time for the stock to re-gain some ground. It's 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.

"Yes, there's a downside risk that the share price could be lower and that could affect our estimate; it also could be higher," California Department of Finance spokesperson H.D. Palmer said.

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," Gaines said.

The Finance Department also points out that the budget does not account for capital gains taxes, when Facebook shares are sold at a profit. That could help boost state coffers.


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