AARON VEGA, director of the Office of Economic Development and Planning for the city of Holyoke, said the money Holyoke collects in community impact fees from cannabis companies will address costs related to the industry.
So far, Holyoke spent $45,000 of nearly $2 million collected on staff for Vega’s office to review special permits for cannabis companies and deal with cannabis licensing and regulations. The city plans to spend more money this summer and fall on infrastructure, staffing support, and drug education.
“Every penny collected is in a separate account for the city,” Vega said. “The impact fee will be spent directly on impacts from the cannabis industry.”
But a new study commissioned by the cannabis industry finds that most communities are not as diligent in allocating cannabis money to cannabis costs. Instead, communities are putting money into general funds, public schools, police and fire costs, and other areas that have little connection to marijuana. Many communities lack transparency about how the money is being spent.
“Many municipalities are using community impact fees as a slush fund with zero accountability and little transparency,” said David O’Brien, president and CEO of the Massachusetts Cannabis Business Association. O’Brien said cannabis impact fees have turned into “a bit of a piggy bank creation” that lets municipalities tax new business operators.
Current law and guidance issued by the Cannabis Control Commission states that community impact fees, which are fees charged by a municipality to a marijuana a business as part of a host community agreement, cannot exceed 3 percent of gross sales and must be reasonably related to the costs imposed upon the municipality by the operation. Municipalities are supposed to document these costs as part of each business’s license renewal process. But the commission only requires licensees to request this information from the town. It does not follow up with municipalities to make sure that they provide it. Generally, there is no method for enforcing this guidance, since the Cannabis Control Commission has maintained that it has no authority over host community agreements and has asked the Legislature to grant it additional authority.
Marijuana businesses in several communities have sued their host towns, arguing that the fees exceed any costs they imposed on the community. One case related to host community agreements went up to the Supreme Judicial Court, which urged the Legislature to clarify the laws.
The study released Thursday, conducted by Jeffrey Moyer of Northeastern University’s School of Public Policy and Urban Affairs, involved sending public records requests to 88 cities and towns requesting information about how much money has been raised from community impact fees and how it has been spent. Only 54 responded, with 47 of them reporting collecting impact fees totaling $53 million. (The others did not report a total amount or had not collected any fees.)
Of those, just 42 communities explained where the money was going, and half of those said it was going into the town’s general fund, so it could be used for any purpose. The municipalities that cited specific purposes mentioned infrastructure (eight communities), a stabilization fund (six), police and firefighting needs (four), public schools (two), and administrative needs (one). A sizeable portion of the money has not yet been spent.
The report also identified inconsistencies in how much money communities said they had received versus what they reported to the Cannabis Control Commission.
“Our review of just a sampling of communities found widespread differences in how cities and towns collect, track, and report the spending of fees from cannabis business operators,” Moyer said in a statement. “With no effective oversight over the collection or spending of these fees, it’s up to municipalities to comply with the law that governs them. Our research shows that while some municipalities are following the spirit of the law and striving for real transparency, most are not.”
A look at some of the responses illustrates the variability among how communities are reporting and spending the money, and whether there are ties to the cannabis industry. Some communities said they paid for road infrastructure or police overtime related to a marijuana business, or drug education, but many expenditures appear unrelated.
Barre said that of $23,000 collected, between $7,000 and $8,000 has been spent on equipment for the fire department to read carbon monoxide levels. Bellingham said an unspecified amount was put into the general fund and used to pay for a second school resource officer. Medway put $738,200 into its general fund. Millis spent money on police officer training, a school resource officer, and its general operating budget. Haverhill, which is facing litigation on this issue, provided a detailed breakdown of costs related to drug education, staff time, licensing expenditures, and other areas. Several communities submitted spreadsheets detailing the size of payments with no information about how the money was spent.
“As a business owner, I track every dollar that goes through my business. It’s disturbing that cities and towns in Massachusetts are collecting millions of dollars from hard-working businesses, and can’t even say where the money is going,” said Caroline Pineau, owner of Stem, a retail cannabis shop in Haverhill, which sued the city over its fees. “We shouldn’t be treated as a piggy bank that can be raided for local spending that has nothing to do with our business.”
But Geoff Beckwith, executive director of the Massachusetts Municipal Association, said communities were initially told they would get 6 percent of revenues – 3 percent through a local sales tax and 3 percent through impact fees – with flexibility to allocate the funds. “Since that time the industry has been waging a campaign to eliminate the impact fee, and has tried to curtail the authority of cities and towns to negotiate host community agreements,” Beckwith said.
Beckwith said communities should retain the ability to negotiate on behalf of their taxpayers, and reducing the fee or overregulating communities would undermine one of the incentives municipalities have to host recreational marijuana businesses. “It’s no surprise that the cannabis industry is issuing another report that promotes the financial interests of their membership, aiding their campaign to discredit host community agreements that cities and towns have negotiated fairly on behalf of the public,” Beckwith said.
The study is reviving an issue that is pending before the Legislature in the final weeks of the legislative session, which would clarify the guidance around community impact fees and give the Cannabis Control Commission more authority to regulate them.
The House and Senate both passed bills, a final version of which must now be negotiated, that would clarify that community impact fees must be reasonably related to the costs imposed upon the municipality by the business, and those impacts must be documented and given in writing to the licensee. The bill would also give the Cannabis Control Commission authority to reject a host community agreement that does not adhere to state law.
Cannabis Control Commissioner Kimberly Roy said Thursday that transparency and accountability are important in agreements between municipalities and marijuana companies. “I personally would like to see where the funds are being spent,” she said.
Roy said the bill giving the commission more oversight over host community agreements, if it becomes law, “will go a long way in satisfying and addressing the concerns of our constituents and our licensees.”
Sen. Sonia Chang-Díaz, Senate chair of the Legislature’s Joint Committee on Cannabis Policy and a candidate for governor, said in a statement that the report “shows how arbitrary and unequal the Host Community Agreement process has become” and highlights the need for reform through legislation. “It’s a major roadblock for our goal of creating a diverse, equitable, locally owned cannabis industry, and we have to do better,” Chang-Diaz said.