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No tax windfall from medical, retail sales

By: The Gazette Op/Ed
March 22, 2015 Updated: March 22, 2015 at 6:22 am
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A year ago, Colorado’s governor’s office had grand plans to fund programs and resources aimed at protecting public safety and health in the aftermath of legalized retail pot sales.

The state anticipated a marijuana tax windfall from medical and recreational sales to pay for it all — and Gov. John Hickenlooper called for nearly $100 million for prevention and treatment programs, including a project aimed at analyzing the correlation between marijuana use during pregnancy and birth defects.

See also: Addressing driver impairment difficult

“Our administration is committed to the responsible regulation of adult-use marijuana and the effective allocation of resources to protect public safety and health and to prevent underage use,” reads a Feb. 18, 2014, funding request for fiscal year 2014-15 that the governor signed. “Indeed, we view our top priority as creating an environment where negative impacts on children from marijuana legalization are avoided completely.”

Along with legalizing pot in Colorado, voters approved Proposition AA, which tacked on high taxes to retail marijuana — a 15 percent excise tax to fund school capital projects and a 10 percent sales tax to offset costs associated with retail pot, such as regulation. 

See also: Regulation still ineffective

But sales haven’t matched expectations, and complications resulting from Colorado’s Taxpayer’s Bill of Rights, or TABOR, could further affect the amount of money the state receives. It’s possible some of the money collected could be refunded to voters.

Taxpayers may get two refunds under TABOR.

One refund occurs when state revenue exceeds revenue cap. The second occurs when a new tax is imposed, such as the taxes on marijuana, and the amount that officials believe will be collected is not met.

“TABOR required you do a second thing,” explained Tim Hoover, communications director for the Colorado Fiscal Institute. “You say what the total state revenue would be without the new taxes, so if this marijuana tax didn’t pass, how much money would you still have.”

The legislative council’s estimate of taxes the marijuana industry would generate was off by 1 percent, so the money must be returned, Hoover said. 

The state can keep the tax money collected if it’s shown that voters approve — which Hoover believes they did when they approved Amendment 64 and Proposition AA, which imposed taxes to fund school capital projects and marijuana enforcement.

Last month, state officials released tax figures on recreational and medical sales for 2014, which amounted to roughly $63.4 million. Tack on additional licenses and fees and Colorado’s total take was about $76 million.

The 15 percent excise tax dedicated for schools — projected alone to raise $40 million — has generated about one-third of original estimates. Excise taxes totaled $13.3 million from Jan. 1 through Dec. 31, according to data from the Colorado Department of Revenue.

The 2014-15 fiscal year, which began July 1, is shaping up a bit better. Between July 1 and Dec. 31, the state collected $38.9 million in taxes from recreational and medical sales, a monthly average of nearly $6.5 million. If tax revenues hold steady for the remaining six months of the current fiscal year, tax collections — not including licenses and fees — will ring in around $77.8 million.

None of this is to say a lot of pot isn’t being sold. It’s just that Coloradans have been savvy about where they shop or how they get their pot. Some grow their own (adults are allowed to have up to six plants), and others choose to make their purchases at medical marijuana dispensaries, where the drug isn’t subject to the extra
25 percent in taxes.

That was an unexpected consequence to many people who have followed the marijuana tax money — everyone from former Colorado Attorney General John Suthers to legislative economists.

The original plan to spend marijuana tax revenue included:

• $11 million for the Department of Education to pay for more school resource officers and programs to address mental health and substance abuse prevention.

• $32.2 million for the Department of Human Services for substance abuse programs.

• $456,760 for the Department of Law to develop expertise on retail regulations and provide training for regulators and law enforcement.

• $42.3 million ($16.9 million from the general fund and the rest federal funds) for the Department of Health Care Policy and Financing for substance-abuse initiatives, including treatment and prevention programs in 230 schools.

That roughly $100 million plan was drastically modified.

“We ended up with much closer to a $33.5 million budget for this fiscal year,” said Andrew Freedman, director of the Governor’s Office of Marijuana Coordination.

Freedman said the first priority for the tax revenue is to cover regulatory costs at the Department of Revenue and the Colorado Department of Public Health and Environment.

Money also has been spent on youth prevention, public safety and public health programs related directly to marijuana.

Here’s where some tax money is going in the current fiscal year:

• $7.6 million to enforce current regulations for retail and medical sales of marijuana.

• $5.6 million for a statewide public education campaign.

Freedman said the “Good to Know” campaign, which currently tells people how to use the drug safely and legally, will expand. “There will be a youth prevention message coming out, I believe, in late spring,” he said. There also will be more education on marijuana edibles in ensuing rollouts of the campaign.

• The Department of Education is getting $2.5 million to fund health professionals in schools to identify and help kids at risk for drug use. Freedman said the money is paired with $6.3 million for school-based prevention and intervention services; $2.1 million of that is a federal match.

• $2 million to Tony Grampsas Youth Services for prevention of marijuana use among youths.

• $2 million for jail-based behavioral programs. 

• $2 million for prediversion programs at the local level, offering alternatives to incarceration.

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