California could get an estimated $1 billion annual boost to its coffers if it were to implement a recreational marijuana market.
In the grand scheme of state budgets, the money from legal weed is a drop in the bucket. However, for some state and municipal programs, the new industry — which economists say is pulling money mostly out of the black market — is responsible for some new revenue streams for existing programs.
Here’s a glance at some of the more unique ways marijuana tax revenue has been put to use in legal states and some of the directions that money may go in other states weighing legalization of medical or recreational cannabis:
Pot to pot holes
The Colorado Fiscal Institute’s Chris Stiffler has a saying when it comes to marijuana tax revenue in Colorado, “Reefer hires roofers, not teachers.”
A good chunk — $40 million — of Colorado’s cannabis tax haul is earmarked for capital improvements funds for rural schools. The remainder is doled out to a variety of different areas including regulation costs, drug treatment, education and enforcement programs. The state collects a 15 percent excise tax on wholesale marijuana transfers, and has a 10 percent tax on recreational sales in addition to the standard 2.9 percent sales tax. Local governments can add additional taxes.
Colorado Gov. John Hickenlooper, in an e-mail interview with media site Attn: last week, gave a breakdown of the current state of marijuana tax affairs in Colorado:
Beyond regulating and preventing/mitigating the negative impacts of legal marijuana, we are working to use marijuana tax money to benefit Colorado’s residents. In past years, marijuana tax money has funded school bullying prevention, dropout prevention, early literacy, and other efforts. In the future, we hope to allocate significant marijuana funds to permanent supportive housing for the homeless.
However, we caution states considering legalization that the tax revenue from marijuana sales will not solve major budget issues. In the 2015-2016 Fiscal Year, we collected $141 million in tax revenue from medical and retail marijuana sales, which is relatively small in comparison to a roughly $27 billion budget. While the tax revenue can fund regulation, youth prevention, and other programs, it should not be seen as the answer to any budget crisis.
Colorado municipalities have taken some different approaches with their share of the tax revenue:
• Aurora gained national attention when it dedicated $1.5 million to homeless programs.
• Adams County put more than $500,000 toward scholarships to low-income students.
• Pueblo West put its $200,000 in county pot tax revenue toward pot holes and road repairs.
• Edgewater is eyeing the use of marijuana revenue to fund its civic center.
• Trinidad used some of its $850,000 in cannabis tax revenue toward replacing clay and wooden water lines, Bloomberg reported.
As more states have adopted recreational regulations, education certainly has been a popular landing spot for marijuana tax revenue, but this “local-focused” approach also emerged as a common theme, said Joe Henchman, vice president of legal and state projects at the Tax Foundation, a tax policy research foundation.
“Local needs is certainly a big part of the marijuana discussion,” he said.
Among the various overhauls to Washington’s marijuana laws that included a switch to a 37 percent tax on sales, the state last year moved to allow some distributions of excise tax revenue to jurisdictions that have not banned recreational marijuana. However, some remain critical of how the state is utilizing those revenues.
Cities in Oregon are voting whether to implement an additional 3 percent tax on the existing statewide 25 percent sales tax on recreational cannabis.
Oregon cities Brookings and Gold Beach would put the excess cash into their general funds. Some of the money in Gold Beach’s general fund is expected to be spent on addressing derelict and abandoned buildings, the Curry Coastal Pilot reported.
Eugene, Ore., would use its 3 percent funds on social services, a community court and parks security, according to the Register-Guard.
In California, in which voters will decide on recreational pot measure Proposition 64, cities across the state have ballot measures to add taxes to help them shore up funds, Reuters reported:
More than 60 local marijuana measures will appear on ballots across California in Tuesday’s election. In Monterey, a scenic county along the state’s rugged central coast, officials said new local marijuana taxes and fees, if approved, could bring in $30 million, nearly double the county’s $16 million budget deficit.
In Coalinga, a Fresno County community of about 13,000, officials hope to solve a $3 million budget crisis with marijuana taxes. Central California’s King City anticipates new revenues of $1 million to $2 million, or almost 30 percent of the city’s general fund.
Proposed marijuana taxes in Gonzales, population 8,400, are projected to hit $1.6 million, more than the city collects annually in sales and property taxes combined.
“There is no other business that would generate this type of revenue,” Gonzales City Manager Rene Mendez said. “It’s easy to see why this is something that communities want to pursue.”
Just as Colorado officials are always quick to caution that marijuana revenue won’t solve every budget ill, legalization opponents — including Pueblo residents seeking to repeal the southern Colorado county’s recreational marijuana law — argue that marijuana causes social and public health costs that outweigh any tax revenue benefit.
Whether the revenue covers those types of concerns is left in the eye of the beholder, Henchman said.
“Whether it’s covered enough of the secondary costs, added law enforcement, public education, health care … I think it really depends on your perspective of marijuana legalization,” he said. “It’s hard for me to judge that because it’s not really a thing that’s a quantitative number.”
The Tax Foundation earlier this year released a report, “Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington,” that outlined how the states allocated their respective revenue streams.
The Marijuana Policy Project, a national pro-legalization advocacy group, compiled a breakdown of the allocations for the five adult-use initiatives on Tuesday’s ballots:
– 15 percent tax on retail marijuana sales in addition to standard state and local sales taxes.
– Revenues will first be used to fund any costs of regulation not covered by fees. Additional revenue will be distributed as follows: 40 percent to school districts for school construction, maintenance, and operating costs; 40% to school districts for full-day kindergarten programs; and 20% to the Department of Health Services for public education regarding the relative harms of alcohol, marijuana, and other substances.
– Arizona Joint Legislative Budget Committee analysis estimates $123+ million per year in total revenue, including $55+ million per yer for K-12 education.
– 15 percent excise tax on all retail sales (medical and non-medical) in addition to standard state and local taxes (medical patients with ID cards are exempted from standard state stales tax). Licensed growers taxed $9.25 per ounce on flower and $2.75 per ounce on leaves.
– Revenues will first be used to fund any costs of regulation not covered by fees. Directs excise and cultivation tax revenues to the newly established California Marijuana Tax Fund, a special fund. The Fund ensures that the new law is adequately funded and researched and then dedicates the majority of revenue to programs for educating against substance abuse by youth, training law enforcement, and environmental cleanup.
– Campaign estimates more than $1 billion in tax revenue per year.
– 10 percent total tax on retail marijuana sales.
– Revenues will first be used to fund any costs of regulation not covered by fees. Additional to Department of Education to fund public school construction, maintenance, and operating costs, including teacher pay.
– By adjusting a study by the Tax Foundation, the campaign estimates the tax will generate $15 million per year.
– 3.75 percent excise tax on retail marijuana sales in addition to standard state and local sales taxes. Localities can impose an additional excise tax of up to 2 percent.
– Revenues will first be used to fund any costs of regulation not covered by fees. Any additional marijuana tax revenue will be re-deposited into the General Fund.
– 15 percent excise tax on wholesale marijuana sales plus standard state and local sales taxes on retail sales.
– Revenues will first be used to fund any costs of regulation not covered by fees. Any additional revenue will be used to benefit public education via the State Distributive School Account in the State General Fund.
– An analysis performed by RCG Economics and the Marijuana Policy Group estimates more than $60 million in annual revenue, including about $20 million per year for schools.
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