Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters. The social network's IPO didn't deliver the big capital gains taxes that California was counting on.
On Wednesday, KPCC's Julie Small caught up with the California state finance department and reported on the "Facebook Effect" that failed to live up to intial expectations. The state of California had anticipated a windfall from the sale of stock by employees of the gargantuan social network after its initial public offering.
We all know how the IPO went: it was a massive disappointment. Facebook opened at $38 a share and hasn't climbed back to that offering price since Day 1 of trading. Now it's bumping around in the high $20 range, but it fell below $18 earlier this year.
California still collected a decent amount of tax revenue from Facebook employees and investors who sold stock. But the finance department had initially projected almost $2 billion; it got half that.
This is sad, but there's a far sadder factor at play, and it's called...the "Facebook Effect!"
A playground for kindergarten students under construction. It's being build in part with capital appreciation bonds.
Capital Appreciation Bonds. CABs for short. They're getting a very, very bad name and have invited some very, very bad press over the past few months. My KPCC colleague Vanessa Romo is the latest reporter to take a dive into these financial instruments, which school districts in California and other states have been using to borrow money.
Why the bad name? In exchange for making no payments on principal or interest for, in some cases, decades, school districts trying to build facilities borrow tens of millions today and can end up paying six times that when the bill comes due, well into the future, after the interest has "accreted," in the lingo of finance.
The cost of present-day, voter-approved borrowing is passed on to a completely different generation of taxpaying voters.
School districts do this when property taxes aren't adequate to fund projects and when raising taxes is politically unpalatable.