Does Facebook IPO Windfall Equal A Boost To California’s Economy?

Since these employees are all based in California, it makes sense to ask if their good fortune could mean a boost to the state’s economy in the near future. According to some finance experts, the answer may be yes. Said H.D. Palmer, deputy director of external affairs for the California Department of Finance, “The closest analogue is the 2004 Google IPO,” he said. “Its benefit to the state’s general fund was in the neighborhood of hundreds of millions – at least $400 million.”

How did that happen, and how would it happen with Facebook? Much as it did with the Google IPO, the state will make money when cash out their shares (as many are likely to right away) and then have to pay taxes on it.

Could state revenues from the Facebook IPO actually be more sizable than they were from Google? “If it’s as big as it’s advertised, it certainly has the potential to eclipse the Google IPO — but it won’t happen overnight,” Palmer said. “While the potential revenue gain is certainly significant, it has to be viewed in the larger context of the legislature having to close a budget gap that we estimate to be $9.2 billion before the state’s new fiscal year begins on July 1st.”

The first official data from the state that could reflect any Facebook IPO money affecting the state’s General Fund would be the revised revenue forecast to be released in May. Will it reveal a major improvement in the overall California budget crisis? Not likely, said Jason Sisney of the Legislative Analyst’s Office, an adviser to the California legislature on state budget issues. “This is only going to be one relatively small piece of how California addresses its budgetary issues in the next few years,” Sisney said.

University of California economic professor Richard A. Walker commented on the predictable paths that many of the Facebook IPO cash-out employees may take – for example, founding more small California web design firms, California SEO agencies or other types of Internet-based companies. According to Walker, this isn’t necessarily what the state needs to bounce back. “While the tech boom today is a healthy contributor to the local economy, what the state needs more is ordinary jobs with decent pay, not just high-paid or very wealthy techies,” he said. But as a business owner, you may very well believe that all revenue is good revenue – so what do you think? Let us know in the comments below!