Pot money adds to haze around budget deal

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Smoking pot is the easy part. Crunching the tax dollar predictions from that toking is hard.

The estimates of state revenues from marijuana are drawing close attention as the Legislature looks to resolve a protracted budget deadlock.

On Monday, House Democrats' chief budget writer, Rep. Ross Hunter, D-Medina, questioned whether the state's economists are too optimistic in their latest predictions on marijuana tax revenue for the Washington government's main 2015-2017 budget.

He also voiced qualms about state economists' optimistic predictions on Monday for construction-related sales tax and related estate excise tax revenue. Hunter speculated the revenue could fall beneath the official estimates because the construction industry has hard-to-predict ups and downs.

Meanwhile, the Senate Republicans' chief budget writer, Sen. Andy Hill, R-Redmond, said the Washington Economic & Revenue Forecast Council's new predictions for 2015-2017 are the best possible figures for the Legislature to use to negotiate a budget.

And on the sidelines, the state government's chief economist, Steve Lerch, cautioned that predicting marijuana tax revenues is uncharted territory.

All this surfaced Monday when Lerch's staff unveiled its latest economic forecast -- a vital part of the number crunching in the Legislature's budget negotiations. That forecast predicted the state will collect $106 million more than expected in fees and taxes for the 2013-2015 budget biennium, which ends this June 30. That means the state will have a slightly bigger cushion of cash on hand when it begins the 2015-2017 budget biennium.

Also, Lerch's staff predicted that Washington's very slowly growing economy will provide $309 million more in taxes and fees than expected for the 2015-2017 budget biennium, which begin this July 1.

Hunter and Hill said the $309 million gives negotiators a little more money to work with as they try to compromise on their budget proposals. The GOP-controlled Senate originally proposed $38 billion and the Democratic House proposed $38.8 billion for 2015-2017.

Hill went further, saying the latest forecast makes the Republican case stronger for no new taxes.

Both sides have been close-mouthed about details of the talks, but indications are that little progress has been made.

Some of the budget-talk difficulties come from the Republicans and Democrats structuring their budget proposals in several radically different ways. Democrats argue that $1.5 billion in new taxes or in tax break closures are needed to meet all the state's obligations. The Republicans argue that all the obligations can be met with no new tax measures or tax-break closures.

Meanwhile, both sides want to seriously revamp marijuana taxation.

Currently, each wholesale and retail marijuana sale in Washington is charged a 25 percent state tax. That tax is normally charged three times — on the sale from the grower to the processor, on the sale from the processor to the retailer, and on the retail sale to a consumer. Those taxes are added into the prices charged to the processors and to the retailers — and, ultimately, to the consumers.

This is the system that Lerch's staff used to predict the state will raise $374 million in taxes from marijuana transactions. At least 80 percent of that is designated for health-related programs and other purposes outlined in Initiative 502, which legalized recreational marijuana in 2012. The $374 million in marijuana taxes estimated for 2015-2017 dwarfs the $53 million expected in the 2013-2015 biennium that will soon end.

But both the GOP and Democrats want to get rid of the growers and processors' sales taxes, and just tax the retail sales of marijuana. The Democratic proposal calls for a retail sales tax of 30 percent, estimated to raise $214 million instead of $374 million. The GOP proposal calls for a retail sales tax of 37 percent, which is estimated to raise $325 million.

Three unknowns haunt both scenarios.

No one knows what the final retail sales tax rate will be. Currently, the bulk of the state's marijuana tax revenue is already locked in for health and other programs, which are not the ones -- such as education improvements -- that legislators need money to pay for. So, no one knows how much of the additional pot tax money will end up going to the general fund to actually help each side's budget proposals. Finally, no one really knows how much legal recreational pot will actually be bought in shops over the next two years -- and taxed.

These unknowns have become essentially best guesses by the GOP and Democrats in their complicated budget talks, which have already sent the Legislature into one extra 30-day special session that ends May 28. The odds are high that a second 30-day special session will have to be called.


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About the Authors & Contributors

John Stang

John Stang

John Stang is a freelance writer who often covers state government and the environment. He can be reached on email at johnstang_8@hotmail.com and on Twitter at @johnstang_8