California is facing a huge deficit two years after it saw a jumbo-sized surplus. Budget experts point to the same cause: the IPO market
An underappreciated and understudied factor has likely played a big role in California ’s financial swing over the last two years from a jumbo-sized budget surplus to a large projected deficit, budget experts say — the market for initial public offerings.
The ballooning deficit is due to lighter-than-expected tax revenue, according to state officials. In a press conference, Newsom was clear about the cause of that revenue shortfall: the fluctuations the state has seen in taxes on capital gains. Early investors and founding team members often sell shares in such offerings, generating capital gains that are taxed by the state. Going public often triggers the vesting of so-called restricted stock units; their conversion into shares at that moment is counted and taxed as income for their holders.
But with the stock market’s subsequent slump, the state revenue from capital gains taxes fell to an estimated $15.2 billion in fiscal 2022-23, according to the agency. That amounted to 8.4% of general-fund revenue, the lowest level in nine years. Cecil Williams archive arrives at SF Library ahead of memorial Sixty years of documents from Williams' GlLIDE tenure are now on display at the main branch
Last year, due to the winter storms, the filing deadline for state and federal income taxes was moved back to November. In estimating the projected windfall to state coffers, budget officials took into account a range of factors, including the recovering stock market. But the actual revenue the state saw was $20 billion less than expected, said Chas Alamo, principal fiscal and policy analyst in the state Legislative Analyst’s Office.
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