Calif. cities ask voters to tax pot to ease gaps

October 22, 2010

Marcus Wohlsen, Associated Press

As Californians weigh whether to legalize marijuana statewide, many cash-strapped cities across the state will also consider ballot measures to tax on the drug. Even if voters don't legalize pot for recreational use, cities from Sacramento to San Jose could still come away from Election Day with a hefty new source of revenue from taxes on medical marijuana.

Backers of Proposition 19 have pushed legalization as a moneymaker for cities, since the statewide measure gives local governments the power to decide whether to allow and tax sales of the drug.

But many cities already have retail outlets selling pot legally for medical use. And city leaders have not felt a need to wait for the rest of the state to decide whether they can make money off an industry that seems to be thriving despite the recession.

"Any source of revenue is a good thing," said San Jose City Councilman Pierluigi Oliverio, the main backer of a measure that would allow the city to tax marijuana businesses at a rate of up to 10 percent—the highest in the state.

San Jose has been laboring this year to close a $118 million budget deficit. This city of nearly 1 million residents laid off 49 firefighters this summer and asked all city employees to take a 10 percent pay cut. At the same time, its neighborhoods have seen a huge influx of medical marijuana dispensaries, leading to tension with law enforcement and a contentious effort to regulate the clubs.

The ballot measure will not only raise money for police, fire, parks and streets but also help ensure the dispensaries are operating within state law by requiring financial audits, Oliverio said. As in several other cities with similar proposals, the San Jose measure has no formal opposition.

Other cities looking to pot to raise revenue include Sacramento, where a ballot measure would impose a 4 percent tax on medical marijuana businesses and up to a 10 percent tax on recreational pot retailers if Proposition 19 passes. Berkeley would impose a 2.5 percent tax on medical marijuana while the tax in nearby Richmond would be 5 percent.

The measures are facing opposition from some medical marijuana advocates who say the extra costs could end up getting passed on to patients.

Americans for Safe Access spokesman Kris Hermes says his group opposes the measures because medical marijuana patients already pay sales tax for their drug, while prescription medications are exempt. More taxes could make the cost of medical marijuana prohibitive for some, Hermes said.

"We understand that local economies are strapped and people are looking for creative ways to gain greater revenue," he said. "We're just hoping that local government understands the plight of patients and shifts that tax burden away from the patient community."

Yet dispensary owners were also a driving force behind the country's first special tax on marijuana, which Oakland voters approved last year. To burnish their image as good neighbors, dispensary owners including Richard Lee, the main sponsor of Proposition 19, supported a big tax hike on medical marijuana sales.

Under the measure, the four clubs allowed to operate in the city now must pay $18 for every $1,000 in gross sales instead of $1.20, the rate applied to other retail businesses.

Based on sales of nearly $28 million, Oakland city auditor Courtney Ruby expects the city to reap more than $500,000 in pot tax revenue this year.

This November, Oakland voters will be asked to consider raising that rate to $50 for every $1,000 in sales. Under the proposed new rate, the city's revenue would rise to nearly $1.4 million—still a small chunk of the $31 million deficit.

The city laid off 80 police officers this summer in an effort to close that gap.

As residents weigh their decision, the Oakland City Council is considering whether to expand the number of licensed dispensaries from four to eight while doubling the clubs' annual fees from $30,000 to $60,000.

Other cities putting pot taxes before voters include Albany, La Puente and Stockton. A Long Beach measure would impose a 15 percent tax if Proposition 19 passes on any businesses that sells recreational marijuana.

Meanwhile, at least one California city is proposing a tax on pot that seems designed not to raise money for municipal coffers but to discourage growing or selling the drug in the city at all.

Current zoning laws in the Sacramento-area suburb of Rancho Cordova do not allow for medical marijuana dispensaries within city limits. Under a measure on the November ballot, the City Council could demand even home growers pay the city $600 to $900 per square foot for the right to cultivate the crop for personal use.

If Proposition 19 passes, state residents could legally grow pot gardens up to 25 square feet on private property. Under the Rancho Cordova proposal, such a garden would cost a grower $15,000 in taxes.

Rancho Cordova Mayor Ken Cooley said the proposed rates are an upper limit and that the city is not trying to outlaw pot. At the same time, he said that since incorporating in 2003 the city has worked hard to overcome its image as Sacramento's "dumping ground."

Older residents are particularly concerned about home invasions and other crime they see as associated with homegrown marijuana, Cooley said. Also, he said big marijuana gardens have an odor that neighbors cannot escape.

"What we've put out there is a tool in the toolkit. It's not a minimum, it's a maximum," Cooley said. "It's trying to work within the legal framework ... not trying to trick the voters."

At least two other cities in the state are proposing to send a very direct message to would-be marijuana entrepreneurs within their limits: stay away.

In Santa Barbara and the central coast fishing town of Morro Bay, voters will decide whether to ban medical marijuana dispensaries outright.

Opponents of the Morro Bay measure argue that not only will dispensaries provide pot to patients but will bring tax revenue to the city. Other city businesses disagree.

"The Morro Bay Chamber of Commerce has been promoting Morro Bay as a nature lover's, family friendly and tourist destination," supporters write in the official argument in support of the ban. "How can that possibly be reconciled with storefronts selling a drug illegal under federal law?" 

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