Google Stock Boom Boosts Calif. Coffers

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 percent state capital gains tax or a recent voter-approved 1 percent 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 Department of Finance.

In the often slippery world of state finance, the wildly successful Google has had an unusually tangible effect on California's budget. It has become the face of an extraordinary two-year resurgence in state capital gains and stock-options revenue, much of which can be traced back to the tech sector.

Mega-sized tax filings 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 re-election.

Schwarzenegger's good fortune, it turns out, did not end there.

As Google's stock topped $500 in 2006, company executives continued to sell hundreds of thousands of shares each month, according to an analysis of insider transaction data provided to The Associated Press by research firm Thomson Financial.

The analysis makes clear that California will reap big benefits from a rebounded 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 percent last year, to $131.4 billion.

Google insiders are on pace to pay a cumulative $1 billion by 2008 in state income tax since the company went public. Combined, that's about 1 percent of the state's annual general fund budget.

Although the company is helping push capital gains revenue above historical averages, state finance experts say they are not overly concerned that the latest tech boost is another bubble ready to burst and wreak havoc with the state budget.

According to the state's latest figures, capital gains and stock options accounted for nearly 14 cents of every tax dollar collected in California in the fiscal year that ended last summer. Similar numbers are expected this year. That's nearly double the percentage two years ago, following the dot-com bust.

But that's still less than the heady days of the Internet boom in 2000, when capital gains and stock options accounted for a whopping 40 percent of all personal income in California and a quarter of the state's tax revenue.

Nonetheless, state officials say they are closely monitoring the income.

"I admit, I've been looking at those insider trading sheets almost daily. It's amazing; day after day, millions and millions of shares," said Brad Williams, senior fiscal forecaster for the state's nonpartisan Legislative Analyst's Office. "It's not all attributable to one company, but Google is a big sign that we're going to see capital gains again this year and that the budget won't be as bad as it could be."

Last month, the analyst's office released its fiscal outlook for the budget year beginning in July. It predicted capital gains and stock options would help lift California's current-year bank balance $1 billion above earlier forecasts.

California also will receive a bounce from the 2006 stock sales of other leading high-tech CEOs.

That includes nearly $17 million from the sale of shares by Oracle Corp. Oracle Chief Executive Larry Ellison and nearly $10 million from shares sold by Cisco Systems Inc. Cisco Chief Executive John Chambers, according to figures provided by Thomson Financial.

The state also will receive about $3.5 million in unexpected tax revenue from a million shares of Hewlett-Packard Co. stock that company insiders sold during the spying scandal that rocked the computer and printer maker last year.

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 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.

Lawmakers drove up state spending nearly 40 percent during three years of the dot-com boom, a spree that has left the state's spending needs perched above its revenue. The state has largely balanced its budget since then with a combination of borrowing, cuts and deferred payments.

Schwarzenegger has opened a reserve fund and with the help of Google ensured the state has $3.1 billion to put toward next year's shortfall. But fiscal watchdogs point out that the governor also has allowed many costly state programs to grow, and the tech windfall is masking a drop in tax revenue from a depressed housing market.

Last week, Schwarzenegger bet that by spending more he might help prevent another tech bust. Schwarzenegger proposed spending $95 million to pump up biomedical, nanotech and other research programs at California universities.

"It's money that has a very direct impact on this state. It's where you're going to find the next Oracle, next Google or next eBay," said Palmer, the finance spokesman. "It's not only about being on the cutting edge of nano, bio or what have you, but about job creation in the state and the revenue the state takes in. The benefits are pretty obvious."[via]