What Will Pot Legalization Cost San Diego?

Monday, August 29, 2016
By Andrew Bowen

San Diego voters will be deciding on two marijuana measures on the November ballot: Proposition 64, which would legalize recreational pot statewide; and Measure N, which would impose a 5 percent tax on sales of non-medical pot if it's legalized.

The city's Independent Budget Analyst last week estimated Measure N could generate $22 million in its first year and $35 million in the second year, when the tax rate would jump to 8 percent. The estimates were based on legal pot sales in Denver, which has roughly half the population of San Diego.

That money is meant to pay for the costs associated with marijuana legalization, said Measure N's architect, City Councilman Mark Kersey. He acknowledged there's not a reliable estimate for how high those costs would be, but he said the city should be prepared.

"We don't want to all of a sudden see all these costs and then have to figure out how we're going to handle them," Kersey said. "It's really a situation of trying to be prudent, proactive, getting out ahead of this before it becomes a real problem for the city."

The state Legislative Analyst's Office says Proposition 64 would result in both higher costs and higher revenues for state and local governments. For example, county jails and state prisons would have fewer inmates because some actions would no longer be a crime. But the state would also have to spend more money regulating marijuana production and sales.

Proposition 64 would impose a 15 percent excise tax on sales of all marijuana, medical and non-medical, in addition to state and local sales taxes. It would also place a $9.25 tax on every ounce of dried marijuana flower and a $2.75 tax per ounce on dried marijuana leaves.

Some of that money would go directly to San Diego in the form of a $2 million annual grant to UC San Diego's Center for Medicinal Cannabis Research. Other portions of the state revenue would go to drug prevention programs, grants to assist communities most affected by past drug policies, environmental clean-up of illegal grow operations and grants to local governments to pay for public health and safety impacts.

Kersey said he does not expect much of the money would reach city coffers.

"The way we typically see these things work is LA and the Bay Area get most of that money, and San Diego is kind of left looking for scraps," he said. "It's just not going to be anywhere close to what we need to actually cover the city's costs."

Legalization would be a net gain for state and local governments, the Legislative Analyst's Office predicted. But that revenue would be lower in the first few years as the state begins to issue pot shop licenses and those businesses start to get off the ground.

Pot tax revenue in Colorado has exceeded expectations, and voters last year rejected a measure that would have given refunds to taxpayers. Much of the money is being spent on schools.

In San Diego, Measure N revenues would go into the city's general fund, which Councilwoman Marti Emerald called a "black hole" when she voted against placing the measure on the ballot. Kersey said the general fund is the right place for the tax money because it pays for police and code compliance.

He said if the costs of legalization aren't as high as he fears, that extra money could still help the city in other ways. But, Kersey said, the point of the measure is to ensure the city is well prepared.