A month ago, California Governor Gavin Newsom boasted that his state will soon overtake Germany as the world’s fourth biggest economy, using a Bloomberg News piece to back up his claim.
The state’s economic development and employment gains continue to propel the nation’s economy, Newsom said, despite claims to the contrary.
Throughout his time as governor, Newsom has been fixated with boasting that California is a world leader in almost every human endeavor, and has indirectly implied that he is the driving force behind this achievement.
Not surprisingly, he didn’t bring up a separate Bloomberg item that reported a decline in initial public offers (IPOs) by California companies, a key economic indicator the state had previously dominated.
According to Bloomberg’s review of SEC filings, “just nine firms located in California went public during the first three quarters of 2022,” whereas the number of IPOs launched by California-based businesses was 81 during the same time in 2021. The percentage of US IPO revenues generated in California has dropped substantially, from 39% in 2021 to 2% as of September 30.
According to Bloomberg, University of Florida finance professor Jay Ritter says that falling valuations in Silicon Valley are “almost completely” to blame for the state’s lackluster IPO activity.
This is not a trivial matter. The formation of new companies followed by initial public offerings (IPOs) has been a staple of the Silicon Valley technology sector for decades, creating untold billions of dollars in new wealth that trickles down to other industries and generates enormous amounts of income tax revenue for the state.
Legislative Analyst Brian Uhler said, “We are already seeing an immediate impact,” as reported by Bloomberg. And it seems like a big deal.
Uhler reported a drop of 5%, or $354 million, in income tax withholding payments made by California employers in September compared to the same month a year earlier due to a drop in IPO activity.
Nearly $5 billion in income taxes fell short of projections for the first three months of the state budget’s fiscal year that started July 1.