Oregon Cities Are Watching Cannabis Tax Dollars Slip Out of Their Pockets

Measure 110 replaced incarceration with drug treatment programs—funded by weed taxes.

The city of Ontario, Oregon, had a dream: build a second bridge across the Snake River using the tax revenue collected from cannabis sales. After all, the city estimated, 90% of customers buying weed in the Eastern Oregon town were driving across the existing bridge from Idaho.

That dream died June 28, along with Senate Bill 864. The bill would have allowed municipalities to hike their weed sales taxes from 3% to 10%.

The League of Oregon Cities lobbied hard for the bill, to no avail, as did the Association of Oregon Counties.

Why? Because cities and counties say they need that money after the passage of Measure 110, which Oregon voters approved last year to decriminalize small amounts of hard drugs.

The measure also replaced incarceration with drug treatment programs—funded by weed taxes. The state accomplished this by capping how much cannabis tax revenue local governments could keep.

That means local governments expect to lose 73% of their projected weed tax revenue because of the decriminalization measure.

Many of Oregon’s towns had come to rely on weed tax revenue as discretionary funds they could use to help pay for law enforcement, parks, libraries and infrastructure, and to backfill general fund budgets. Now that money is being redirected to addiction treatment—and cities can’t hike weed taxes to make up the difference.

“We predict cities and counties are going to lose $50 million in the next biennium, and that’s a 73% reduction,” Mark Gharst, a lobbyist for the League of Oregon Cities, tells WW. “I know that the voters certainly wanted more money to go to drug treatment, and that’s laudable, but I don’t know if it was clear to folks when they were voting that a large chunk of that was actually going to come from local government.”

Taxes on cannabis, along with the alcohol tax, were one of the state’s only tax revenues that actually grew during the pandemic. So losing much of that growth in revenue magnifies the hurt for cities and counties, Gharst says.

“Your lodging and tax revenues have gone down. If you’re a city like Salem that relies on parking fees, those meters have lost revenue,” Gharst adds. “But weed was one source along with liquor where we had actually gotten more money during the pandemic. So it does hurt quite a bit.”

Sen. Floyd Prozanski (D-Eugene) testified against the bill that would have allowed cities to hike their cannabis tax rates. He says local governments have used weed tax dollars far more broadly than voters intended when they legalized recreational cannabis in 2014. “The voters stated what they wanted recreational tax dollars to be used for back in 2014,” Prozanski says, “and it was not for general purposes, including building bridges.”

Even though the SB 864 floundered in the House, it’s likely to be revived in coming legislative sessions. Rep. Nancy Nathanson (D-Eugene) has pledged to form a workgroup to continue discussions.

Kim Lundin of the Oregon Cannabis Association acknowledges that the loss of funding caused by Measure 110 puts cities and counties in a sticky position, but she says the state shouldn’t rely on the weed industry—struggling with low overhead and a spree of robberies last year—to once again bankroll government spending.

The state excise tax on weed sales already stands at 17%, plus a 3% local tax. An additional 10% local tax would “have been a burden the retailers couldn’t bear,” Lundin says.

Oregon’s 20% tax rate on cannabis is far lower than that in two neighboring states: Washington’s rate is 46% and California’s is 45%. Portland economist Beau Whitney says Oregon shouldn’t hike that rate—keeping prices low helps control the black market.

“When a measure to reallocate passes with the huge popularity it did, there are going to be unintended consequences,” Whitney says. “And unfortunately the cities and counties are the ones who are taking on this burden.”

Sen. Lynn Findley (R-Vale), who supported Senate Bill 864, tells WW that Measure 110 stripped Ontario of much of its funding. Consumers are crossing the Idaho border in mass numbers to buy weed in Oregon, he says.

“The city is just trying to figure out how to make themselves whole,” Findley tells WW. “Seven [more] cents on the dollar is not going to keep anyone from coming over and buying marijuana. What it will do is help the city deal with the influx of people. They have a huge public safety issue, a huge homeless issue, and they’re trying to figure out how to plug most of those holes.”