City Beat

Pot tax could help Sacramento close budget gap

Marijuana plants grow on the hillside property of grower Duane McCall, 62, near Willow Creek on July 29, 2015, in Mendocino County.
Marijuana plants grow on the hillside property of grower Duane McCall, 62, near Willow Creek on July 29, 2015, in Mendocino County.

Sacramento city leaders may turn to a cash crop next year to help address a looming financial cliff at City Hall: weed.

Taxing the sale of recreational marijuana is one of five revenue options included in a report by city finance director Leyne Milstein that paints a bleak picture of the city’s budget.

A projection for what a pot tax could generate has not been completed, but Milstein said it could provide at least $2 million a year to the general fund, which pays for most core city services. The taxation of up to 10 percent would require statewide legalization of marijuana, an issue California voters are likely to consider next year.

City voters approved a ballot measure in 2010 that would have taxed recreational marijuana sales at 10 percent if a statewide legalization measure that year had also passed. The state measure failed.

Increasing the tax in the city requires passage of another ballot measure.

“The likelihood of (marijuana) legalization is coming and (a city tax is) something we should consider on our ballot for 2016,” Milstein told a City Council budget committee on Tuesday.

Separately, Milstein suggested the city explore increasing the fees it charges businesses in Sacramento. Those fees have not been changed since 1991, according to a staff report. Increasing those fees could generate $3 million to $5 million a year, Milstein said.

New revenue streams will be needed soon, she said.

The city has hired dozens of police officers and parks workers over the past two years as it emerged from the recession. But Milstein warned the economic hot streak could be short-lived, especially if a temporary half-percentage-point increase in the sales tax approved by city voters in 2012 is not extended beyond its 2019 expiration date.

Milstein projected a $57 million deficit by 2020 if Measure U is not renewed. Even with the sales tax in place, the city’s budget gap is estimated to hit $13.1 million by 2018 and $9.3 million in 2020 because “current expenditure commitments are unsustainable,” according to the report.

“We’re really already at a point of imbalance,” Milstein said.

Mayor Kevin Johnson, who chairs the budget committee, said the panel would give its feedback to Milstein’s report at the next committee meeting, in December.

The projected deficits are the result of multiyear agreements the city has with its labor unions, including a contract the City Council agreed to earlier this year with the city’s firefighters that budget officials warned will cost an additional $8 million a year by 2017, budget officials said. That contract included the first significant pay raises for firefighters since 2008.

Other factors driving the future deficits include new programs and services approved by the City Council and a $20 million increase over the next five years in city pension costs.

Measure U generates more than $40 million a year for the city. The tax has funded many of the police officers, firefighters and park maintenance crews the city has added the past two years. The city has also used the money to open public swimming pools, install new infrastructure in parks and extend hours at city libraries.

No formal talks have taken place yet over whether to place a Measure U extension on a future ballot.

Ryan Lillis: 916-321-1085, @Ryan_Lillis

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