Four Tech Companies Just Saved California from a Budget Crisis

Bay Area tech giants’ historic stock market run this year has one colossal beneficiary: California state government.

The Legislative Analyst’s Office, a nonpartisan adviser for the state Legislature, published a “Fiscal Outlook” for the 2025-2026 state budget last week (see Industry Insider — California’s coverage here). The document is meant to provide analysis on state coffers and expenditures before Gov. Gavin Newsom submits his proposed budget in January. Good news for the year ahead: The LAO said the budget should be “roughly balanced,” thanks, in large part, to tech’s red-hot year on the stock market.

The report began with talk of an economic slowdown — the LAO called California’s job market and consumer spending “lackluster” and the state economy “sluggish.” But wage gains among high-income workers, particularly their bonuses and stock grants, are more than making up the necessary difference in tax revenues.

“In the first half of 2024, stock pay alone at four major technology companies accounted for almost 10 percent of the state’s total income tax withholding,” the office wrote. “Because this form of compensation is tied to the company’s stock price, it rises when stock prices rise.”

Big Tech’s stock prices boomed in 2024. Bay Area-headquartered Nvidia, Apple, Google and Meta were already humongous companies at the start of the year — as of Thursday, they had grown in value by 199 percent, 19 percent, 19 percent and 59 percent, respectively. Tesla, which has a Palo Alto engineering headquarters and large local workforce, is up 38 percent year to date. Even some smaller and less well-known Bay Area firms are seeing banner years: Broadcom is up 48 percent, and AppLovin is up a bewildering 693 percent.

It’s not just the market. CalMattersreported that state tax rules adopted in June mean companies have a trickier time claiming deductions and getting tax credits. But the outlet also found that the state received a whopping $800 million more than expected in corporate taxes on one single day in July — likely from one or more fast-growing, massive Silicon Valley companies.

All the growth — on paper — is great for California. Companies have to withhold income taxes when employees’ “restricted stock units” vest into actual stocks, which typically happens four times a year. And how much the company withholds goes up with the price of the stock on the day the RSU vests. When the LAO analyzed this type of tax withholding at Apple, Google, Nvidia and Meta in 2023, the adviser found that California was raking in “at least $5 billion annually” from the four companies.

California got that much cash this year, and then some. The LAO wrote in Wednesday’s report that income taxes are set to end the current year 20 percent higher than two years ago. Because California is spending billions on things like health care, education and the criminal justice system, the tech-backed tax windfall is a godsend: It helps to cancel out what the LAO called “atypically high spending growth.” While 2025-2026 looks “roughly balanced,” per the LAO, the office forecasts deficits of more than $20 billion over each of the three years after.

And though the boom for Big Tech is easing California’s stress for the year to come, the LAO included a warning in its report and pointed to Nvidia’s particularly dramatic growth: “A recovery built on a stock market rally is especially precarious. We cannot predict with any confidence what the stock market will do next.”

(c)2024 SFGate, San Francisco. Distributed by Tribune Content Agency, LLC.