California Bet 2% Of Its Budget On Facebook's Stock Price Remaining High

from the oops dept

California, a state that has had budget problems for years, apparently bet approximately 2% of its budget on the idea that Facebook’s stock would remain at or above $35 and that a bunch of insiders would sell, racking up tax revenue for the state. However, with the stock continuing to drop, the state’s fiscal analyst is now warning that perhaps over a billion dollars in expected tax revenue may be at risk. The state’s budget is $91.3 billion, and that was built on the assumption that a successful Facebook IPO and insider sales (at an average price of $35) would bring in $1.9 billion. Of course, the stock has been in decline since its IPO, dropping below $20, hence the concern.

What I love about the linked article, however, is that the Bloomberg reporter sought to get a comment from Facebook over this (the company declined). What did he think Facebook would have to say? That it would try harder? That it felt bad that the state overestimated its stock price just about as much as the company itself did? I would imagine that budget overruns by the state due to Facebook’s falling stock are pretty far down the list of priorities for Mark Zuckerberg these days…

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Comments on “California Bet 2% Of Its Budget On Facebook's Stock Price Remaining High”

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Anonymous Coward says:

Re: Re: Re:

You got it, but Mike certainly was willing to write a heading that was fairly misleading.

California didn’t bet anything. They didn’t take 2% of their budget and bet it on black on a roulette table. They made budget assumptions based on something, which didn’t turn out to be true. The lack of truth is enough that many lawsuits are pending over the issue.

The state of California did nothing wrong. They apparently were as mislead as all of the early IPO investors.

Mike once again dips to yellow journalism to try to score points, all that is missing is a silly graphic to back it up.

Anonymous Coward says:

Re: Re: Re:2 Re:

No, that isn’t making a bet – that’s just poor forecasting. Mike wrote it in a manner that suggests that the state purchased stock or placed a bet on the company. They didn’t. They just forecast poorly, based on the insane over valuation that much of the stock market placed on this “air seller” company.

Perhaps it’s better to explain that they were trying to fill their budget, and gladly accepted numbers that were a little speculative. No betting though.

Dave Mowers says:

Re: Re: Re:

Ironically had California established a State bank and invested in home mortgages, car loans, credit cards etc with the common people it would not have these problems and would have even been eligible, like Wall Street investment banks are, for zero percent interest loans. Instead they bank on stock pump and dump schemes and give that investment income from tax revenues to Goldman Sachs to manage for them for no profit.

Anonymous Coward says:

Re: Re:

Did you actually pay any attention to what the article said? The state is not investing budget money in the stock market. The article is saying that the state budget office, expected to generate tax revenue based on the people who owned FB stock selling it. In other words, basically we are talking about state derived income tax revenues.

ShellMG says:

Re: Re:

The City of Detroit, where corruption starts from the top down and has for +40 years, invested a lot of money from their pension funds in very dubious schemes. The unqualified reps on the pension board wasted unbelievable (wait…it IS Detroit) sums on trips overseas, luxury resorts, restaurants, etc., with money from the pension fund. Now the fund is way too short — even taking the decline in the stock market into consideration — to cover their obligations.

I guess the only silver lining is that Detroit didn’t invest their day-to-day money the same way. It disappeared into the pockets of the Kilpatrick Machine long before it could make it that far.

kenichi tanaka says:

So, California has also fallen to those “get rich quick” schemes. You would think that state governments would be wise to this since they’re the ones always putting out those scam alerts to their own residents.

How many fools invested in facebook, hoping it would pay off? Not me. A fool and his money are soon departed.

New Mexico Mark says:

How about...

If only there were a way CA state government could place a large bet against their own political and fiscal wisdom. That seems like a sure thing to me…

I know governments have to try to project revenues, but it seems to me that potential profits from Facebook insider selling should have been treated as a windfall if successful, not a line item for expected future revenue.

Anonymous Coward says:

Well look at Zynga that fad is about over and I know it shows Facebook making 15-20% from them or whatever but I think it’s probably more.

If you’ve ever played one of their shitty games just look at the massive ad spam.

I’m don’t even log on Facebook anymore because they keep fucking everything up by “fixing” shit that was not broke in the first place.

I got sucked into the little pay to win games but after deleting my FB it feels good to hunt for the next big thing.

I know the two contradict themselves when I say “I deleted it and I don’t even log”
Here’s why Facebook loves to keep your shit anyways even if you do delete it.

Evil fuckers :/ oh well nothing on it of value anyways. No phone or valid address or a full name lol.

Anonymous Coward says:

Facebook didn’t set the price of the stock. Those same too-big-to-fail banks did that. (one in particular) One bank in Sweden I believe it is, is suing because the computers went down, and that caused multiple purchases because the initial purchase could not be verified.

The whole dog and pony show that Facebook IPO revolved around was a mess from the start.

These politicians gambling on the value of a stock being sold by it’s investors living in their state is a shame. It’s a form of gambling with them looking for any excuse to bail them out of their wild spending spree and you’re just looking at another example. Truth in finances has been missing not just from the state of California but also from other states as well as the Federal government. All of them seem to be trying to balance the books by gaming the system with betting on eggs that haven’t hatched yet.

Pwdrskir (profile) says:

CalPERS is goin' down...

The GASB is changing the way that States & Cities post their pension liabilities, making them officially show the unfunded liabilities on the books. Entities that have an incentive to pretend that these liabilities aren?t real liabilities are going to get a rude awakening ? see BK cities in CA.

Kevin Williamson wrote ?GASBombed, The accounting-standards board is about to nuke state and local budgets ? and it?s about time.? May 15, 2012

Excerpt from article:
?CalPERS, the gargantuan California public-sector pension system, managed to avoid making adequate pension contributions for years by convincing the state legislature (which was only too willing to be convinced) that the Dow would hit 25,000 in 2009. (It didn?t. And it also may not hit 28,000,000 by 2099, as CalPERS predicted.) The legislature used those numbers to justify an enormous increase in pension benefits for California?s public-sector parasites, at a theoretical cost of $0.00: ?No increase over current employer contributions is needed for these benefit improvements,? the fairy tale went. Those who want a stronger government whip hand over the investment industry should consider how governments act when they are investors.?

Anonymous Coward says:

The fundamental problem in CA is that an unusual percent of their revenue is based on collection of personal income taxes. When the economy is riding high, this works out well for a state that has the 8th (ish) largest economy in the world and accounts for 10-15% of the entire US economy. The state makes a lot during economic bubbles.
The problem comes in that the budget, in a process that can only be described as “dumb-ass”, is set based on projected revenues. An economy can collapse, with very little warning, inside of a budget cycle. Which leaves the state screwed, until the economy rebounds.

The economy does always rebound. And CA usually leads it. (for various reasons, not least of which IS that ef’d up tax code.)

CA pays more in federal taxes than it receives in federal services. People in net consumer states (and I’m talking about some of the flyover and YOU Mr.southeast), need to temper your rhetoric. When your state economy is actually PAYING for the services it receives, I’ll be much more inclined to give it a listen. Or, you could go “money where your mouth is Tea Party” and simply decline all those federal services. Set an example. Say “no” to unemployment money, highway funds, welfare, medicare, etc.

For those in Cali that don’t like it: move. There are 49 other states to choose from 🙂

(I came from CA, where I’ve through more than one boom-bust. I’ve lived all over the map in the US (TX, NY, KS, TN, NJ, NE, etc.). Now I live abroad, with the goal of gaining citizenship in other countries. (For future security, should the US royally screw up and elect a republican disaster, again). CA is still my fave place.)

Vox says:

This shows the jooish connection

This shows the “jooish connection”. Facebook, well known to be yet another jooish scam non-product and the school board controlled by jooz, felt no remorse over investing the goyim’s money on one of their tribe’s inventions on the promise that the goy’s money would help enrich one of their own and well if the goy lost their money well it just shows the goy are idiots.

Big M says:

“California” didn’t bet anything. A handful of slimy crooks, who manipulate the books and don’t tell the people of the state that they’re sitting on hundreds of billions of dollars in liquid assets, did the betting.

And a budget has nothing to do with the financial health of a state, business or household. It’s nothing but a tool.

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