Cities scrap for share of marijuana tax revenue

OLYMPIA--A new economic forecast predicts recreational-marijuana businesses will bring millions to the state, and the fight is underway for how the proceeds will be spent, with cities vying for a share.

Recreational-marijuana business is expected to bring in $51 million in state revenue during 2015-2017, according to a recent financial report released by the Washington State Economic and Revenue Forecast Council. During 2017-2019, marijuana-tax revenue is projected at $138.5 million.

The new source of revenue represents a fraction of the total state revenue, with a total expected of more than $35 billion in 2015-2017. The revenue forecast for the 2015-2017 biennium has increased by $82 million from previous estimates.

This is the first time retail-marijuana revenue has been included in an economic calculation. Now lawmakers have to decide what to do with the additional money.

All marijuana tax revenue would currently go to the state. But the Association of Washington Cities wants the state to share the revenues with local jurisdictions. This week, the group submitted a letter to the Legislature, signed by almost 100 mayors, calling for lawmakers to take action this session.

In the letter, they said it’s “a matter of common sense and fairness” to provide some of the marijuana revenue to cities and towns if the “state is relying on local cities to enforce new marijuana laws.”

Rep. Ross Hunter, D-Medina, chair of the forecast council and the House Appropriations Committee, said the state has many requests for funding and needs to address important responsibilities, such as education.

Hunter said the financial impact on local jurisdictions is unclear, and wants to see how they are affected before committing to share tax revenues.

Rep. Terry Nealey, R-Dayton, the House Republican representative on the Economic and Revenue Forecast Council, said he supports sharing the marijuana-tax revenues with cities, and doesn’t believe the state should just “sit back and collect the tax” without doing any of the work.

Fourteen counties have imposed a moratorium on retail-marijuana businesses. Bob Ferguson, the state attorney general, issued a letter that Initiative 502 does not prevent local jurisdictions from enacting such bans.

House Bill 2144 would create a dedicated fund for marijuana tax-revenue for local jurisdictions, including cities, towns, counties and other municipalities. Twenty percent of the excise tax on transactions between retailers and consumers and 10 percent of the excise tax between producers and processors would be deposited into the fund.

There is a 25 percent excise tax on transactions at all three steps of the process: production, processing and retail.

The bill also prevents local laws or ordinances from interfering with the legal marijuana market. Cities, towns or counties would not be able to ban retail marijuana businesses under the legislation. It was given a public hearing in the House Appropriations Committee Feb. 7, but has been held up in committee.

Rep. Cary Condotta, R-East Wenatchee, the prime sponsor, said his bill would encourage counties and cities to participate, helping to successfully implement I-502 as a significant revenue source. He said it’s ridiculous to expect cities to pay for regulation and licensing costs without receiving any of the tax revenue.

Washington and Colorado are the only two states to legalize marijuana for personal use. Colorado opened state stores on Jan.1. Marijuana-tax revenue in Colorado is expected to bring in more than $100 million, exceeding previous projections. Cities there receive 1.5 percent of the sales tax from marijuana sales.

Colorado Gov. John Hickenlooper released a budget proposal with plans to use the majority of revenue for youth drug prevention, substance-abuse treatment and public-health programs.

Kevin Bommer, deputy director for the Colorado Municipal League, a group that represents cities and towns in Colorado, worked with a task force in the Colorado Legislature to develop a plan for new taxes on marijuana sales, which then had to be approved by voters.

He said stores only opened two months ago, and it’s too early to tell if the current plan gives cities enough money to cover the cost of enforcement and regulation.

The Washington State Liquor Control Board is set to issue its first marijuana-producers and processors licenses this week, depending on when applicants meet the final licensing requirements.

It plans to announce the date of a marijuana retail-license lottery in about two weeks. Stores are expected to open in late June.