Signs point to Facebook going public in 2012. If Mark Zuckerberg’s social network has a successful IPO, it could mean hundreds of millions of dollars in taxes get pumped into California’s coffers. (David Paul Morris, Bloomberg / September 22, 2011)

By Anthony York, Los Angeles Times
January 15, 2012, 9:42 p.m.

Reporting from Sacramento— The future of California’s public schools, universities and health programs could be linked partly to the fictional town of FarmVille.

The popular virtual world is the creation of Zynga, a San Francisco online game company that raised $1 billion in an initial public stock offering last year. Because California receives much of its income from capital gains taxes, such moves by businesses like Zynga can mean hundreds of millions of dollars for state coffers.

More California technology companies are poised to go public this year — including a widely expected $10-billion offering from Facebook — than at any time since the dot-com boom, experts say. Their success could relieve state officials of the need to cut state services more deeply in the budget year that begins in July, but Gov. Jerry Brown and his fellow Democrats are already squaring off over whether to count on the fruits of those transactions.

Some Democratic lawmakers, as well as some economists, have said Brown’s newly proposed budget underestimates the strength of California’s economic recovery, much of which is being driven by record profits in the technology sector and the surge in new public offerings. Officials in Brown’s Department of Finance say they did not factor in a potential tax spike in the next fiscal year from, for example, a Facebook IPO.

“We haven’t affixed a value to it yet, so it’s not part of our forecast,” spokesman H.D. Palmer said.

But the legislators, who note that it’s not unheard of for a single company to boost the state’s budget, are hoping Facebook will do for California what Google’s IPO did in the last decade. Capital gains tax receipts from stock sales rose to $54 billion in 2005, from $39.7 billion in 2004, the year Google went public, according to Franchise Tax Board figures, although it is unclear how much was due to Google.

“The state’s revenues soared from the ‘Google effect,’ ” said Sen. Lois Wolk (D-Davis), chairwoman of the Senate Governance and Finance Committee. “I expect we will see a surge in state revenue from the Facebook IPO in 2012.”

The nonpartisan Legislative Analyst’s Office concurred last week in a review of the governor’s proposed budget. State revenue forecasts “need to be adjusted to account for the possibility of hundreds of millions of dollars of additional revenues related to the Facebook IPO,” the analysis said.

There’s a lag between the moment a company goes public and the state’s receipt of any tax windfall. Executives and other employees often receive stock or options that typically cannot be cashed in until weeks or months after the IPO. But when the shares are sold, the state takes about a 10% cut of the profits.

And the profits can have ripple effects. “The money made from these IPOs is used for other things, some of them taxable — like real estate, for example,” said Brad Williams, a former numbers cruncher for the legislative analyst.

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