'Facebook Effect' could bolster California offers. That's the good news...

If the social networking giant goes public this year, as expected, the state will reap hundreds of millions of dollars in capital gains taxes from investors and employees. That's the good news because California, with its $9.2 billion deficit, certainly can use the money. It's such a big deal that the Legislative Analyst's Office had a section on the "Facebook Effect" in its review of Gov. Brown's proposed budget. From AP:

Last decade, the state had Google Inc. to thank. Mega-sized tax filings from Google executives began flowing into state coffers in 2006, two years after the company went public. The receipts helped fuel a tax windfall that allowed former Gov. Arnold Schwarzenegger to pour money into roads, classrooms and other popular programs, pleasing political enemies and helping smooth his path to re-election. After cashing in more than 9 million shares valued at $3.7 billion that year, 16 Google insiders owed the state as much as $380 million in taxes. At the time, that was enough to cover the salaries of more than 3,000 state workers.

The problem, of course, is that state lawmakers have come to rely on these one-time windfalls in their budget calculations. And as we saw in 2008 and 2009, revenues from capital gains can shoot way down just as quickly as they can shoot way up. That's why the state's dependence on high-end taxpayers doesn't make much sense. From Bloomberg:

Capital-gains tax revenue as a percentage of the state's general fund plummeted from 12 percent to just 3 percent between 2007 and 2009 as investors pulled away from the stock market, a decline of $9.3 billion, according to state finance department figures. It is a significant concern," said Gabriel Petek, an analyst at Standard & Poor's, which ranks California's credit the worst among its peers at A-. "It's probably one of the things that presents a structural impediment to the rating and makes it hard for the state's credit rating to move up into the AA range that the typical state is."