Governor Jerry Brown surprised the state political world
with his May budget revision that calculated a revenue surge of $6.6 billion.
Welcome news to a state that had to fill a budget hole more than twice that
size. But, what happens if that unanticipated revenue is just the beginning?
Less than a week after the governor’s press conference, the
LinkedIn IPO sent the stock market into a dither with LinkedIn stocks soaring
to unexpected heights. While it has settled back, the stock is still about
double the original offering.
Last week, Kathleen Pender wrote
an insightful article in the San Francisco Chronicle questioning whether
this IPO could open the floodgates for more of the same from other social
networking companies in the Silicon Valley.
Pender pointed out if the match is lit on an IPO explosion, the state
could see a gusher of money from capital gains taxes. Some analysts have
suggested the surge acknowledged by the governor is made up in large part by
capital gains taxes.
But Pender offered a warning in her article: "If it happens,
let’s hope lawmakers will be smarter about spending these one-time revenues
than they were during the last Internet bubble."
Amen to that
But how to keep the legislators from closing the budget gap
without overspending? Overspending of capital gains revenue during the last
Internet bubble during the Gray Davis
years sent the state into a drunken stupor to which it has not yet recovered.
The Wall Street Journal editorial page took pains to embrace
the LinkedIn IPO result as a hopeful sign of a rebounding economy while, at
the same time, warning that the IPO offering carried the "whiff of manias" from
the past that didn’t justify their rocket-like launch.
For California, the challenge is to take care of our budget
needs without establishing new obligations. Money should be put aside in a
reserve instead of refunding all the programs that felt cuts until we see where
the economy is headed. If the surge grows, reduction of debt should be next in
line for the money.
Of course, we should not count all those tax-dollar chickens
before they’re hatched. As already
noted, LinkedIn stock lost a chunk of its first day value.
However, warnings must be put in place to keep the
legislature from repeating past mistakes.
The possibility of another Internet gusher of tax dollars
should also remind us that the other thing that needs to be put in place is a
With a spending limit, the taxpayers would have protection
against a tax windfall being spent foolishly.
California should embrace the LinkedIn IPO as the start of
some good fiscal news, but do so with the wisdom of the biblical Joseph
who warned that seven prosperous years would be followed by seven lean years
and grain must be stored.