Stiffler: Pot revenue no panacea for state budget

Author: Chris Stiffler - July 28, 2016 - Updated: July 26, 2016

Colorado Fiscal Institute economist Chris Stiffler
Chris Stiffler

If you found a $20 bill while walking down the street, would you then decide to quit your job?

Most likely, you’d just consider yourself mildly more fortunate than you were before finding the twenty. Sure, you’d have lunch paid for that day, but you’d still understand that you would need to keep getting up in the morning to earn money for the big bills — your mortgage, insurance, car payment, utilities, food and so on.

When it comes to Colorado’s marijuana tax revenue, though, there’s a widespread misconception that we can now just pay all of our bills with pot money. My organization, which gives many presentations about the state budget across Colorado, hears this almost every time we visit a community.

What do you mean the state has budget difficulties? The state’s rolling in the dough because of marijuana.

Isn’t it?

Let’s get some real numbers out there and then put them up against some real context. First, let’s note that all marijuana sales — recreational and medical — are subject to the regular state sales tax of 2.9 percent. In addition, recreational sales are subject to a special 15 percent excise tax and a 10 percent sales tax.

So, total taxes collected on recreational marijuana in state Fiscal year 2014-15, the first full year of taxes being levied on recreational pot, were $77.9 million. Of that, $66.1 million came from the special state sales and excise taxes levied on recreational pot.

Now, $80 million sounds like a lot of money, but not so much when you put that up against the total state general fund of $9.7 billion. The general fund is the pot of money into which sales and income taxes go, and it funds schools, prisons, human services, a portion of health care and higher education, among other things.

And pot revenues represent less than 1 percent of that.

That percentage gets much smaller when you look at the total state budget of about $26 billion, a number that includes federal funds and cash funds, the latter of which are made up fees on everything from hunting licenses to well-digging permits.

But beyond the fact that marijuana revenue represents a relatively tiny portion of the budget, we have to look at where the pot money actually goes. By law, the first $40 million of the state excise tax collections goes to the Building Excellent Schools Today, or BEST, program. This is a fund primarily aimed a capital improvements for schools in rural areas, where it’s much harder to raise money to fix roofs, replace air conditioning systems, build an annex and so forth.

But none of the money collected on marijuana goes for operating costs in school districts. In short, reefer hires roofers, not teachers.

So where does the rest of “all that pot money” go?

The remainder goes to marijuana education, treatment, regulation and enforcement programs. In essence, what doesn’t get spent on fixing rural schools goes to administer marijuana itself.

Pot taxes do nothing to offset the huge decreases in K-12 funding that have occurred in recent years as a result of the so-called “negative factor” that has reduced school funding by $800 million below the level of where it would have been before the cuts. Colorado has dropped from 23rd in per pupil funding in 1993 to 40th now, with our per-pupil funding $2,000 below the national average.

None of this is to criticize marijuana legalization proponents or the campaign they led. It’s just to put things in perspective.

As with a lottery and casino gambling, people naturally tend to believe that whatever new vice has been approved will automatically pay for everything and that the model of shared sacrifice that we have relied upon since statehood can end. We tell ourselves that someone else will pay the taxes, not us.

But revenue systems everywhere are made up of the traditional “three-legged stool” of income, sales and property taxes, and when we cut those taxes, as we have all three in recent decades, there are real consequences.

In other words, we can’t quit our day job.

Chris Stiffler

Chris Stiffler

Chris Stiffler is an economist for the Colorado Fiscal Institute.