Marijuana: Denver's projected revenues from recreational pot won't cover expenditures

How much pot is going to be sold next year in Colorado as a result of Amendment 64 is one of the great unknowns giving officials a headache as they try to predict tax revenues -- and costs associated with legalizing the once-forbidden plant are another. The City of Denver's financial department took a shot in the dark and presented its estimates of expenditures and revenues to a Denver City Council committee yesterday. The council is currently considering a flexible 5 percent sales tax with the possibility of increasing it to 10 to 15 percent.

When added to proposed state taxes, that would mean a 25 percent tax for the consumer. This is comparable to the tax on cigarettes, which ranges from 14 to 23 percent depending on the price per pack, according to Cary Kennedy, Denver's chief financial officer.

"Everything you are going to see is a forecast and it's a forecast without a base," Kennedy told councilmembers. "We don't have any experience on recreational marijuana sales, so the analyst from the budget office relied heavily on the state's assumptions when they calculated their estimates and forecasts."

With a 5 percent sales tax, the tax revenues for the city from recreational marijuana sales is predicted to be about $9.2 million -- but the projected expenditures are almost $9.4 million.

"All of our city agencies and the mayor have been actively engaged in making sure, along with all of you [city council], that we have responsible implementation and that the city provides appropriate regulation, enforcement, education, public safety and public health services so that we get this right here in Denver," Kennedy said. "But really, this is going to take a couple years of experience before we're really going to have a clear understanding on both the revenue side as well as the expenditure side."

The expenditures break down into a variety of expenses under three main categories: regulation, enforcement, and health and education. For the enforcement section, the city will hire a multitude of employees -- including an additional attorney, four additional excise and licensing inspectors, two more planning and development personnel, two park rangers and 11.5 police officers. The regulation portion calls for seven additional planning and development employees, four excise and licensing staffers, four health inspectors, one fire inspector, and 14.5 police officers, six of which will be specifically for traffic and DUI's. The health and education portion also includes several new staff members, a youth awareness advertising campaign and a new Denver Cares van, which would transport intoxicated people to a detox facility.

Continue reading for the council members' reactions.

This was the first time that councilmembers had seen the expenditures as a whole, and they have a variety of concerns about the projected costs.

"It seems to me that there is probably a consensus here about the need to cover the cost of regulation," councilwoman Robin Kniech said. "I'm still struggling with the assumptions of what's inside the regulations, though, and what's additional. For example, every new dollar in revenue in not a new dollar in users; it's not that no one used marijuana yesterday, and today, now they're all using."

Currently there are six detectives and one sergeant assigned specifically to medical marijuana cases, and under the proposal there will be 26 officers assigned to recreational marijuana. That, she said, is like the committee assuming a four times increase in marijuana usage with legalization.

Other criticisms concerned the high cost of regulation and enforcement compared to the low costs of health and education.

"This [health and education] pie chart is the one I think that is the most underestimated," said councilwoman Jeanne Faatz, who had a particular issue with the amount being contributed to mental health. Under the current proposal, the city will fund three of eleven mental health centers at schools.

The July 8 presentation was just a proposal; the actual budget and expenditures do not have to be determined until the end of August, which gives the city's financial team time to consider the suggestions made by the council.

The tax rate, however, is a pressing issue: The vote on that is scheduled for the July 29 Denver City Council meeting. And at least among the councilmembers at yesterday's meeting, there seems to be a consensus of starting out with a 5 percent sales tax rate, with the possibility of increasing it to 10 to 15 percent. But the council vote won't be the final word; the proposed Denver sales tax would then have to go to the ballot in November, when Coloradans will also be voting on state taxes on recreational marijuana.

More from our Marijuana archive: "Marijuana: Was damning report on DUI lab delayed because of THC driving bill?"

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