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Moody's says Facebook could hurt California's budget

August 7, 2012 |  8:39 am

The ratings agency Moody's is concerned that Facebook's sliding stock price could widen a hole in California's budget plan.

A new report referred to the situation as a "credit negative development," which means it could dent the state's finances. The stock gained some ground on Monday, reaching nearly $22 before the end of trading, but that's still 42% below its debut price. 

Gov. Jerry Brown's administration estimated a $35 share price, which it hoped would generate $1.9 billion in tax revenue by the end of June 2013. The legislative analyst's office issued a report raising concerns about the share price last week. 

Still, Moody's said Facebook's stumbles on Wall Street aren't a catastrophe for California.

"A loss of hundreds of millions in revenue would equal less than 1% of the state's $91-billion budget," the report says. "Given that California has faced midyear budget gaps of tens of billions of dollars in recent years, we expect a gap of this size opening in the middle of the year to be manageable for the state."

The situation with Facebook may end up spotlighting a perennial challenge for California's budget. The state is very dependant on taxing its wealthy residents, and when their income ebbs and flows, the state budget can end up going along for the ride. 


Facebook a windfall, not a solution, for California 

California watches windfall shrink as Facebook stock slides

California's legislative analyst says deficit may be even higher

-- Chris Megerian in Sacramento