As Towns Ban Pot, States Withhold Legalization's Profits

Massachusetts is deciding whether to keep marijuana tax revenue from anti-pot municipalities, stirring a debate that some states have already settled and others may face in the future.
by | October 13, 2017
(AP/Ted S. Warren)

Whenever a state legalizes recreational marijuana, there's always a local backlash. Have your drugs, towns and cities say, but keep them away from us. If a municipality bans pot, though, should they reap the financial benefits of it being legal?

Some states just say no.

Oregon has already started keeping marijuana tax revenue from localities that effectively ban the substance. California plans to withhold pot-funded law enforcement and health grants from places with a commercial marijuana ban. And now, an effort is underway in Massachusetts to reduce the amount of money that cities and towns with bans and other restrictions on operations get from the state’s 17 percent tax on marijuana sales.

Massachusetts was one of four states that legalized recreational marijuana by popular vote last year. The 2016 election season doubled the number of states with legal weed to eight plus the District of Columbia. The drug is now legal in Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington state.

No hard count exists, but it’s not unusual to see about one-third of localities imposing some kind of ban on pot production and sales in any of those states.

By withholding revenue, states are hoping cities will abandon their bans. But it’s unclear whether the approach will work.

Initial figures from Oregon’s tax revenue distributions suggest the financial hit these cities and towns will take is very small. For starters, the withholding wouldn't affect education aid because 40 percent of marijuana tax revenue in Oregon goes directly to the schools. And, after all the other disbursements of the $84 million in revenue so far, the total left to divvy up between 241 cities was just $8 million -- or $2.85 per person, according to the Oregon League of Cities.

Now that the state has imposed its restrictions on that revenue, pro-marijuana places will see a bigger check. But localities with bans likely won't lose enough to incentivize any policy changes, says the league’s lobbyist, Wendy Johnson. She thinks allowing for a higher local tax rate, however, could spur changes.

In Massachusetts, observers aren't even sure the approach could be implemented. Geoff Beckwith, executive director of the Massachusetts Municipal Association, says it would unfairly punish jurisdictions for exercising their local control. But either way, figuring out just how much to cut from those localities would be “extremely difficult,” he says. “The idea that funding for public schools would be negatively impacted by a community’s decision not to allow pot shops,” says Beckwith, “is in itself, a laughable solution.”

That’s because, unlike most other states, Massachusetts’ ballot measure didn’t earmark large swaths of the potential pot revenue. Whatever marijuana sales tax revenue isn’t spent on the cost of regulation and administration is likely to be sent to the state where it will be mixed with general sales tax revenue. It would then be redistributed to localities for spending on things like education and roads.

But there's still time to change that.

Oregon, for one, made major legislative changes to its marijuana tax structure after voters approved legalization in 2014. Cities and counties each were supposed to get 10 percent of the total revenue collected. But the state altered the distribution formula so that localities that limit or ban marijuana sales or production don’t receive their portion of that 10 percent slice after July 1 of this year.

Massachusetts could do something similar, says Kamani Jefferson, president of the Massachusetts Recreational Consumer Council, which is pushing the effort to withhold pot tax revenue. He believes the current incentive for localities -- the ability to levy their own tax of up to 3 percent on marijuana sales -- isn’t enough.

“That 3 percent is just not enticing enough for them when they can already get [money] from the state,” he says. “If they get no money or a very limited amount of money, then they’d be much more open to saying yes.”