California officials are sounding the alarm after recent statistics showed that fewer corporate and start-up activity in the state was leading to a decline in tax revenue, according to a report by Bloomberg News.
This year, just nine companies based in the state had held initial public offerings (IPOs), which is when a company first lists shares for sale on the stock market – considered a milestone in its growth after strong activity and high valuation, the report revealed. In 2021, California – whose start-up ecosystem in ‘Silicon Valley’ is considered the most prodigious in the world – saw 81 companies conduct IPOs, making 2022 a year of a nine-fold decrease.
Moreover, the value of these IPOs was far lower than in the past, raising merely $177 million, or 2% of the total amount of money raised by U.S. companies that went public in 2022. By contrast, in 2021, California’s share of the revenue generated by IPOs was 39%, by far the largest of any state.
JUST IN: California records fourth straight month of state revenues lower than expected.
Department of Finance says September receipts came in $2.8Billion below what was projected (14.7%), now nearly $7 billion total down from what was expected for June, July, August, Sept.
— Ashley Zavala (@ZavalaA) October 17, 2022
Over the last few years, many companies have departed from California for other states run by Republicans, with Texas being the top destination, gaining 44% of companies that left according to a report by BuildRemote, a business consultancy. These include high-profile departures such as that of electric carmaker Tesla, Inc., led by CEO Elon Musk, which moved its headquarters to Texas.
Musk and other entrepreneurs cite the state’s left-wing policies, enacted by a heavily Democratic state administration, of high taxes, permissive bail reform and drug-use laws, chronic homelessness and stringent COVID-19 regulations as reasons for leaving. Musk called the state the “land of overregulation, overlitigation and overtaxation” when describing his decision to leave.
The loss of IPO funds is affecting California’s tax revenues, with companies’ income tax withholding payments declining by 5% compared to last year, per Brian Ulher, a deputy at the State Legislative Analyst’s office, speaking to Bloomberg. It adds to the nearly $2.8 billion shortfall in tax revenue per California’s projections, which makes for three straight months of decline, per a report by the California Department of Finance.
Tax revenue collected by municipalities in California has also declined, leading to problems funding public services. In San Francisco, for instance, a new business tax levied by the city is “tens of millions of dollars short,” according to the city’s Mayor London Breed, speaking to The San Francisco Chronicle.
California has some of the highest tax rates in the nation, with a 7.25% sales tax and a top income tax rate of 13.3%, both of which outrank all other states. The revenues it gathers far exceed the state’s regular expenditures, and it ran a budget surplus of $97.5 billion in 2021.
The office of Gov. Gavin Newsom did not respond to an immediate request for comment from the Daily Caller News Foundation.
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