Update: The San Diego City Council approved the budget on June 10. Read more.
The San Diego City Council is putting its seal of approval on the 2026 budget Tuesday. The process hasn’t been easy, as city leaders worked over the last couple of weeks to close a nearly $300 million budget deficit.
To give residents a taste of the budgeting process KPBS created the Budget Challenge. In the online interactive game players were tasked with choosing new expenses, cutting costs and raising revenues in order to close the deficit.
Nearly 2,000 people played the game and KPBS recorded their submissions. What we found: players most often chose to increase the city’s cannabis business tax by 2%. San Diego Mayor Todd Gloria’s proposed budget estimated this change would allow the city to collect an additional $2.8 million a year.
In fact, as of May 1, the tax increase is already in place.
Closer look
Increasing “sin taxes” on items considered undesirable or harmful — such as alcohol, tobacco or in this case cannabis — to decrease deficits isn’t uncommon, said cannabis journalist Jackie Bryant.
“So what frequently happens with these sin taxes is that they're basically used as pocketbooks,” Bryant said. “And so in times of economic distress, they're proposed as an easy way to plug budget holes, for example. Obviously, the City of San Diego, I think that can be said is exactly what’s happening here.”
But it’s not as easy as that, according to the City’s Independent Budget Analyst. In a report the IBA said the mayor’s projections “may be optimistic.”
First, the report points out that projected cannabis business tax revenue for fiscal year 2026 is based on the assumption the City Council will approve extended retail hours for cannabis business. The Council is expected to consider a proposal on this later this month.
Second, California’s statewide cannabis tax is set to increase 4% to 19% on July 1. Bryant says this can drive consumers out of the legal cannabis market.
“If you get to check out at a dispensary and you're paying like 35% tax, and you see that sticker shock and you know that there's a way to get it otherwise, you're probably going to go do that,” she said.
The IBA’s office agrees. “Additional taxes imposed to cannabis businesses may accelerate a decrease in gross taxable receipts due to competition from the illicit market,” the IBA report says.
At the end of the day, after taking into account all of these uncertainties, the IBA report says the mayor’s projections are $900,000 dollars off. The IBA office says it’ll continue to monitor the cannabis tax revenue.
By the numbers
Here are the other top choices by Budget Challenge players:
- Increase hotel and tourism taxes to fund homelessness services ($33.8 million in revenue)
- Consolidate the SDPD Northwest Division with another unit affecting six jobs ($1.7 million in savings)
- Reorganize the city’s Race and Equity Department into the Human Resources Department ($663.9K in savings)
- Shift solid waste collection to a new fund and charge a fee for trash and recycling services ($74.1 million in savings)
- Reduce SDPD budget by 5% ($34 million in savings)
