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An ominous warning for the California economy

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Martin do Nascimento
/
CalMatters
The Financial District in San Francisco as seen from Treasure Island on Sept. 1, 2022.

Economic warning signs are mounting in California — foreshadowing potentially tough budget decisions for the state officials and policymakers who emerge victorious from the Nov. 8 election.

One particularly eye-popping statistic: Just nine companies headquartered in the Golden State went public in the first three quarters of 2022, compared to 81 during the same period last year, according to a Bloomberg News analysis.

Bloomberg also found that:

  • As of Sept. 30, initial public offerings in California had raised just $177 million, compared to an average of $16 billion during the same period over the past five years.
  • The $177 million figure represents just 2% of funds generated by U.S. companies that went public through the end of September. Last year at this time, California accounted for 39% of funds nationally.
  • If this trend continues, it could spell an end to the streak California has maintained since 2003 of generating more IPOs than any other state.

“We are already seeing an immediate effect,” Brian Uhler, deputy legislative analyst for the state Legislative Analyst’s Office, told Bloomberg. “And it does appear to be significant,” contributing to a 5% decline in California employers’ income tax withholding payments in September compared to last year.

Indeed, California collected about $2.8 billion less in taxes in September than it thought it would, marking the third straight month of revenues coming in below projections, according to a report released this week by Gov. Gavin Newsom’s Department of Finance.

The problem is also pronounced at the local level. In San Francisco, for example, revenues from a new business tax have plunged as companies struggle to emerge from the pandemic, leading to a shortfall of tens of millions of dollars for homelessness, mental health and substance abuse programs, the San Francisco Chronicle reports.

In a Monday interview with Bloomberg, San Francisco Mayor London Breed said the city needs to become less reliant on tech companies — some of which have downsized or left the area altogether as many employees continue to work from home — in order to stabilize the economy and avoid losing further tax revenue.

Breed said she wants to lure more biotechnology and life sciences companies into empty office buildings downtown, noting that Salesforce — the city’s largest private employer — continues to allow remote work.

  • Breed: Salesforce CEO Marc Benioff is “very supportive of the city, continues to contribute that support to schools and to other great causes, but the building is empty, and that’s a real problem.”
  • A Salesforce spokesperson declined to comment to Bloomberg.

Meanwhile, five of San Francisco’s 11 supervisors are calling for changes to a local ordinance banning city employees from traveling to or contracting with companies based in 30 states that have enacted anti-LGBTQ, anti-abortion or anti-voting-rights laws, according to the San Francisco Chronicle.

  • The supervisors: “By prohibiting the city from doing business with half the nation, this policy has resulted in significant administrative costs and potentially far more significant contracting costs by limiting bidder competition.”

One last financial factoid for the road: Democratic Assemblymember Matt Haney of San Francisco announced Wednesday that he had secured $1.7 million in state funds to build a local public bathroom — though it probably won’t be completed until 2025. “Why is a public bathroom so insanely expensive, and why does it take so long to build?” San Francisco Chronicle columnist Heather Knight asked in exasperation.

Some things never change: I attempted to answer that very same question in a 2019 article for the San Francisco Business Times, headlined: “Building a bathroom cost San Francisco $2 million. Why does a restroom cost as much as a luxury condo to construct?”

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.