Olympia should not count on a marijuana windfall until the money is in the bank.
DON’T envy Steve Lerch.
He is the state official tasked with estimating how much tax revenue Washington’s grand experiment with legal marijuana will yield. As Lerch says, decades of sales- and property-tax data inform his predictive algorithms, but when it comes to legal pot, he has only a few quarters of history.
Nonetheless, the state Economic and Revenue Forecast Council’s latest estimates predict the state will yield an eye-popping $1.1 billion — yes, billion — in marijuana tax revenue over the next four years.
That number, as Lerch says, should be viewed with a great amount of “uncertainty.” No state has tried to estimate marijuana revenue over four years, as Washington’s budget rules require. Yet Senate budget-writers assume every penny will come in. The House budget also takes a rosy view, but with slight differences. If either of these predictions don’t come true, Washington could face a deficit in two years.
That uncertainty should force state budget writers to pause and act conservatively.
Partisan politics in Olympia are ripe over this projected pot windfall. Republicans don’t want to raise new taxes for the 2015-17 budget and they’re leaning heavily on marijuana revenues, in addition to increased tax revenue from other sources as the economy recovers. Democrats do want to raise new taxes and are trying to poke holes in Lerch’s forecast to make their case.
In Colorado, Washington’s twin in legalization, state leaders optimistically expected $150 million in marijuana revenues the first year. The actual amount available turned out to be $58 million.
Colorado now predicts $180 million in marijuana revenue in the next two years. Washington, which has much larger marijuana tax rates and an unregulated medical-marijuana market that is now being reined in, predicts more than double that — $374 million.
Tim Hoover of the Colorado Fiscal Institute has some advice: “Everyone needs to calm down, and they need to expect the unexpected. You’re in a brave new territory.”
Washington’s marijuana revenues this year are coming in higher than expected. But the state should expect the unexpected because its marijuana market is going through big structural changes that could go wrong.
The state’s unregulated, untaxed medical-marijuana dispensaries will slowly be folded into the regulated, taxed recreational market over the next year. To yield the $1.1 billion, the heaviest users — who consume an estimated 70 percent of the supply — would have to seamlessly shift from medical to recreational stores and pay far higher taxes than they’re paying now. That’s a big if.
Washington’s fiscal estimates also do not fully account for competition from Oregon, where stores with a tax rate at least two-thirds lower than Washington’s will soon be opening. That should be a concern because stores on the Oregon border have been big earners for the state.
Lawmakers must step back from these political games and acknowledge the uncertainty of a budget built on marijuana.”
Lawmakers must step back from these political games and acknowledge the uncertainty of a budget built on marijuana. It should be taxed and regulated — the alternative is a corrosive black market.
But legalization is still a work in progress. Listen to Lerch’s caution. The money is not yet in the bank.