Someday, this era may simply be known as The Google Years.
California, whose budget revenue slides up and down like a yo-yo with changes in capital gains and stock options, is once again counting on outsized income tax filings from a handful of tech executives to help balance its budget.
For this wave, California can largely thank Google Inc.
After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes -- enough to cover the salaries of more than 3,000 state workers.
Taxes paid by Google founders Sergey Brin and Larry Page account for nearly half the amount. There is virtually no way for them or other California billionaires to escape a 9.3% state capital gains tax or a recent voter-approved 1% tax on the wealthy to underwrite the state’s mental health programs.
“On behalf of a grateful state, I’ll be happy to wash their windows or mow their lawn,” said H.D. Palmer, spokesman for California’s Finance Department.
In the often slippery world of state finance, the wildly successful Google has had an unusually quantifiable effect on California’s budget. It has become the face of an extraordinary two-year resurgence in state capital gains and stock-option revenue, much of which can be traced back to the tech sector.
Mega-sized tax payments from Google executives began flowing into state coffers in earnest in 2006, two years after the company went public. The receipts helped fuel a multibillion-dollar tax windfall last spring that allowed Gov. Arnold Schwarzenegger to pour money into roads, classrooms and other popular programs, pleasing political enemies and helping smooth his path to reelection.
Schwarzenegger’s good fortune, it turns out, did not end there.
As Google’s stock topped $500 last year, company executives continued to sell hundreds of thousands of shares each month, according to an analysis of insider transaction data by research firm Thomson Financial.
The analysis makes clear that California will reap big benefits from a revived tech economy for the budget year that will begin in July. The revenue even might allow Schwarzenegger to avoid painful cuts to a budget that ballooned 11% last year, to $131.4 billion.
The news, however, is not all good for the state.
California faces a $5.5-billion budget gap in the next fiscal year, and billions in revenue that the state is counting on could evaporate overnight with a drop in the stock market.
Economists say California’s increasing dependence on tech stocks underscores the state’s unusually high reliance on such volatile revenue sources. It also exacerbates the state’s structural budget imbalance by providing bursts of money that lawmakers have been eager to spend on new or expanded programs, rather than setting it aside in reserves.
That money can dry up in down years and leave the state facing massive spending deficits.