Pubdate: Sun, 12 Feb 2012
Source: New York Times (NY)
Copyright: 2012 The New York Times Company
Contact: http://www.nytimes.com/ref/membercenter/help/lettertoeditor.html
Website: http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: Michael Cooper

STRUGGLING CITIES TURN TO A CROP FOR CASH

OAKLAND, Calif. - As the stubborn economic downturn has forced this 
city to take painful steps to balance its budget in recent years, it 
has increasingly turned to one of its newer industries to raise 
much-needed revenues: medical marijuana dispensaries.

The city has raised taxes on marijuana dispensaries several times in 
the past few years, and last year it collected $1.4 million in taxes 
from them - nearly 3 percent of all the business taxes it collected. 
Now Oakland plans to double the number of dispensaries it licenses, 
to eight from the current four, in the hopes that it can collect even 
more revenue.

"This is general fund revenue - it all goes into the melting pot," 
said David McPherson, the city's tax and revenue administrator. "When 
you're making decisions about what to continue keeping or not, it 
goes into that decision process. If you don't have that money, then 
you're making other decisions about 'Are we going to close the 
libraries on MondayUKP' 'Are you going to end up cutting a copUKP' 
'Are you not giving funds to our arts and things that help our kidsUKP' "

Sometimes lost in the discussion of medical marijuana is the extent 
to which it has become a small but growing source of new tax 
collections for cities and states that have been struggling to 
balance their budgets for more than four years now.

Colorado Springs collected more than $700,000 in taxes from the 
medical marijuana industry in 2011. It is not a lot of money for a 
big city. But given the harsh steps the city has taken in recent 
years - in 2010 it shut off a third of its streetlights to save $1.2 
million - every bit helps.

Denver collected more than $3.4 million last year from sales tax and 
application and license fees, according to preliminary figures. The 
State of Colorado collected $5 million in sales tax from medical 
marijuana businesses last year, more than twice what it collected the 
year before.

Taxing marijuana is a relatively new field, and cities and states are 
taking different approaches to raising revenues.

Maine decided that medical marijuana should be subjected to the 
state's 5 percent sales tax - unless the marijuana is baked into 
brownies. In that case, it is taxed at a higher 7 percent rate that 
the state levies on prepared foods.

Oregon closed a budget gap last year in part by raising the annual 
fees it charges people with doctors' notes to join the state's 
medical marijuana program. In October, the state doubled the fee to 
$200 a year - with reduced fees available to people on food stamps - 
to raise an estimated $6.7 million a year to pay for other health programs.

Of course, some of the money raised must be used to administer the 
medical marijuana programs and, in some cases, to increase regulation 
of the industry.

Budget planners always deal in uncertainties like whether tax 
revenues will rebound or how much it will really cost to provide 
services. But projecting medical marijuana revenues adds other layers 
of complications, including whether the federal government will shut 
down the dispensaries that state and local governments have decided to allow.

After signaling in 2009 that it would not normally pursue groups 
providing marijuana to sick patients, the Justice Department has 
cracked down on dispensaries in a number of states in recent months. 
The Internal Revenue Service has targeted a number of dispensaries 
that pay federal taxes as well, arguing that they are not entitled to 
the regular business deductions they have claimed because they should 
be considered drug trafficking organizations.

It has made life complicated for cities.

"What we do know is the federal government has made it complicated 
and the state government has made it complicated and it all flows 
downhill to us," said Mayor Chuck Reed of San Jose, Calif., which 
collects about $2.5 million in taxes from the 100 marijuana 
dispensaries that have opened in the city.

Here in Oakland, medical marijuana is booming. Just a few blocks from 
City Hall is Oaksterdam University, which offers training for people 
in the industry with classes in state and federal law, civics, legal 
business structures and various "methods of ingestion."

The biggest dispensary in the city by far, Harborside Health Center, 
has 104,000 customers and employs 120 people, 90 percent of whom are 
from Oakland, in well-paying jobs with good benefits.

Its executive director, Stephen DeAngelo, helped lead the movement 
several years ago to have the city tax the marijuana industry. "At 
that time, the city was talking about closing down some really 
beloved institutions," he said, adding that Oakland's fiscal plight 
led the center to think about ways of helping the city. "What better 
way of doing that than with a tax?"

But when the city tripled the tax rate to 5 percent in 2010, he 
worried. "I thought 5 percent was a bit excessive," Mr. DeAngelo 
said, but he added that the center was able to absorb the costs. Now, 
he said, the center is among the biggest taxpayers in Oakland.

Oakland will probably not be able to double its tax collections by 
doubling the number of dispensaries. Mr. McPherson, the city tax 
administrator, said that in many cases the same pool of medical 
marijuana users would simply be choosing from more places. But 
opening a dispensary near the Berkeley border, he said, might capture 
some of the Oakland residents who currently go to a dispensary in Berkeley.

Mr. McPherson said the city stood to reap more of what he called the 
"secondary benefits."

"You've got accountants that are working for them, you've got all the 
security companies that are working for them, you have labs that are 
working for them, you have bakeries that are baking all the edibles, 
you have union employees that are getting great benefits, you have 
delivery services, hydroponic stores, doctors get some benefit," he 
said. "It's the secondary market that gains from this, and all of 
those pay business taxes to us."
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MAP posted-by: Jay Bergstrom