IBO Dampens Expectations For Pot Market
Should New York City legalize marijuana, it most likely wouldn’t make as much revenue as previously suggested, the Independent Budget Office (IBO) reported last week.
During testimony at a public forum that State Sen. Liz Kreuger and Assemblywoman Crystal Peoples-Stokes held last Wednesday, Dec. 17, IBO Chief of Staff and Communications Director Doug Turetsky estimated the city would make “about $25 million in city sales tax revenue, with the potential to increase in future years.”
Turetsky stated the estimate- derived from analyzing current sales tax rates, the underground marijuana market in the city and legal pot sales in Colorado-were “considerably less” than estimates then-City Comptroller John Liu trumpeted last year.
In August 2013, Liu released a study his office conducted which concluded the city could collect about $400 million in tax revenue from the $1.65 billion New York City users annually spend to purchase cannabis on the black market. He also stated the city’s criminal justice system would save millions, as legalization would reduce arrests and criminal case volume.
The IBO’s analysis of legalizing marijuana in New York, Turetsky said, assumed the impact of a legalization bill introduced in the state legislature which would impose a $50 per ounce excise tax. The legislation would also permit localities such as New York City to impose an additional 5 percent excise tax plus their standard retail sales tax (the city’s sales tax is 4.5 percent).
The agency also took into account sales tax revenue in Colorado since Jan. 1 of this year, when the Rocky Mountain state and Washington State became the first in the Union to legalize marijuana for recreational use.
“To date, Colorado’s tax revenue from retail sales has been less than expected,” Turetsky testified last Wednesday, noting that consumers who previously had access to medicinal marijuana in Colorado continued to buy from their suppliers rather than new retailers to avoid a 10 percent retail tax imposed on recreational pot.
While New York State is currently forming a medical marijuana system, Turetsky stated, the city already has “a large and well-entrenched black market for cannabis” that could continue to thrive if high taxes are attached to a legal, regulated marijuana market.
Turetsky stated the city is experiencing such a problem with tobacco, as New York State has the highest cigarette sales taxes in the nation. He noted illegal cigarette smuggling and sales have increased as retailers and consumers look to avoid paying the high rates.
But the IBO concurred with the former comptroller that marijuana legalization would reduce financial burdens in the criminal justice system while also creating new retail jobs that generate additional payroll tax revenue.
“But as with many public policy decisions, revenue alone is not the sole test of whether to move forward,” Turetsky noted. “There is a human toll involved with current policies. Consider that over a recent 10-year period, more than 350,000 New York City residents were arrested for possession of small amounts of marijuana, and that blacks and Latinos are arrested at far greater rates than whites.”
“Such factors may be equally or even more important than any calculations of the fiscal effects of legalizing marijuana,” he added.
Even so, the IBO- consistent with its neutral stance on all city policies- neither endorses nor opposes marijuana legalization, Turetsky stated.
