When California-based social networking giant Facebook announced last year that it would sell its shares to the public, economists projected that the state would collect $1.9 billion dollars in taxes from the deal. They expected most of the projected windfall to arrive after the initial public offering when Facebook would allow its employees to sell millions of restricted shares. But they based that projected windfall on the assumption that employees would be able to sell their shares for a lot more than they did.
"We had projected in the budget that was signed back in June that Facebook would be at a static price of $35 a share." explains H.D. Palmer with California’s finance department. "And this fall when Facebook employees were allowed to exercise certain rights on stock, the date that that happened, it was about $23.21 a share."
Palmer says the drop in Facebook’s share price is the main reason California collected $900-million less in personal income taxes revenue than anticipated.
Despite the setback, the state’s in much stronger financial shape now than in recent years when it faced multi-billion-dollar deficits.
A previous headline on this story attributed the state's $900 million shortfall entirely to Facebook. KPCC regrets the error.