Queen’s Park controls the tax revenue from cannabis sales. But will it share?
Tory, York officials among those saying it’s unfair province isn’t covering municipal expenses
When it comes to tax revenues from newly legal cannabis sales in Ontario, Queen’s Park controls the pot.
It’s how it intends to share that pot of new-found money that has many towns and cities across the province worried.
Toronto Mayor John Tory, who heads Ontario’s largest municipality, said the staff has estimated cannabis legalization will put the city on the hook for “tens of millions of dollars” in additional policing, paramedic, fire, public health and other costs.
“And the number that they said they were going to give us was, I guess, we get $3 million,” and a similar amount after that, said Tory, whose council voted Thursday to allow cannabis stores to open shop in the city starting April 1.
Late Thursday, the province announced it would only issue 25 licences across Ontario for businesses at first, blaming national supply issues.
“It clearly is not enough to cover all our costs.”
Tory said in an interview the city’s position has been that the provincial and federal governments should pick up all of Toronto’s extra cannabis expenditures.
“We didn’t change the law (federally), and we didn’t set up the regulatory regime provincially,” he said.
“Therefore property taxpayers should not bear this cost.”
Under current plans, municipalities will share — on a per-household basis — in the $40-million Ontario Cannabis Legalization Implementation Fund, set up to offset their pot-related costs over the next two years.
The fund, which will ensure that even the smallest municipality gets at least $5,000, was sliced from a $100-million grant the province received from Ottawa to help transition into the legal pot era.
Municipalities that allow cannabis stores to open shop will get another similar grant later in 2019.
After that two-year period, municipalities will share half of any revenues generated by Ontario’s portion of the federal excise duty, should these exceed a total of $100 million over the next two years, provincial finance ministry spokesperson Scott Blodgett said in an email.
“We would like to be very clear … municipalities must use this funding to address the costs that directly relate to the legalization of recreational cannabis,” Blodgett said.
These would include any increased enforcement costs for police and public health and court agencies, he said.
Blodgett said the provincial funds would also partially cover costs related to increased use of 311 phone inquiry lines, fire and paramedic services as well as cannabis-related training for municipal workers.
In addition to excise revenues, Ontario will keep its standard 8 per cent portion of the federal/provincial HST charged on online and store sales.
The size of this cannabis pot will depend on the number of stores that eventually open across the province, Blodgett said.
“Provincial tax revenue is directed to the Consolidated Revenue Fund and is used to meet the priority needs of Onta- rio families such as health care, education and infrastructure,” he said.
But Blodgett said that only municipalities that opted to allow pot stores will be eligible for any of the provincial funding beyond the initial payment.
Municipalities have until Jan. 22 to say no to the stores, otherwise they must allow them in any number and almost any location that retail is permitted.
(The Alcohol and Gaming Commission of Ontario will have sole discretion over the number and placement of the stores, which can’t be within 250 metres of schools.)
King Township Mayor Steve Pellegrini said the relative pittance smaller municipalities would get from the province in the per-household formula is one of the main reasons he rejected stores.
“We’ve got 9,000 households in … the largest municipality in terms of area” in York region, Pellegrini said.
“We have more roads and everything to patrol, but with a very limited population, and I would get next to zero,” said Pellegrini, whose council voted unanimously to reject the stores.
He said the $5,000 minimum the province will give all municipalities — the only payment his opted-out community will receive — is “a joke” and would not put a dent in any town’s extra cannabis costs.
“That’s insulting. That’s not going to get me anything.”
Toronto police spokesperson Caroline de Kloet said the force is still calculating what its increased cannabis costs might be.
But just north of the city, the numbers have been crunched. York Regional Police estimated those costs would soar to some $7.7 million annually by 2021, said Jeffrey Channell, manager of financial services.
That would amount to $6.41 for each region resident for police services alone, Channell said, adding that many of the estimates were based on research in Colorado and Washington, where cannabis has been legally sold for nearly five years.
But current provincial funding for all of the region’s increased cannabis costs over the next two years — including to public health and paramedic services — is only $1.40 annually per person, he said.
The force’s increased spending would arise out of some 26 changes and requirements brought on by legalized cannabis.
These include roadside testing and its required equipment; increases in criminal and motor vehicle accident investigations; a team to combat any ongoing black market sales; and a new impaireddriving co-ordinator.
Colorado and Washington research suggests the main front-line policing impacts “are around impaired driving, traffic stops, seizures, drug violations, increases in motor vehicle collisions and injured persons,” he said.
Channell said tax revenues in Washington state were much higher than expected and that the federal and provincial governments might have much more money to pass down to the municipalities than currently anticipated.
That state’s $460-million (U.S.) cannabis revenues last year would translate into $3 billion (Canadian) over this country’s population if similar sales levels were seen here, he said.
“That’s three times any official Canadian estimate of excise taxes.”
But Channell said every significant police organization in the country — including the Canadian Association of Chiefs of Police — has advocated for proper cannabis-related funding from senior governments.
York police Chief Eric Jolliffe said the region’s property tax base should not be responsible for any extra costs for his force.
“Both the federal and provincial governments are collecting revenues from the sale of cannabis, and we have been repeatedly assured we will receive fund- ing to help offset these costs,” Jolliffe said in an email. “As of now, we have only received a small fraction of the costs we have incurred for upfront training.”
In fairness, Tory said, many of the estimated cost hikes for police and other services may never materialize.
“For example, the volume of (311) phone calls we’re receiving at the moment is lower than expected,” he said, adding that expected increases in 911 calls have also failed to materialize.
“I’m prepared to have a little while where we actually see what the experience is. But I think it’s safe to say that as of this moment, the money they have committed to us is less than whatever our costs will be.”
Tory said estimates of extra pot costs the city would face would be above and beyond those the force incurred while policing and prosecuting cannabis crimes during prohibition, which ended Oct. 17.
Association of Municipalities of Ontario president Jamie McGarvey figures any money is better than none, but says civic leaders should monitor their cannabis-related costs closely.
“We’re going to be dealing with (any fallout costs) anyway, so my own personal feeling is we’re better to opt in, because at least we’ll get some extra funding,” said McGarvey, who is also mayor of Parry Sound.
McGarvey — whose group helped lead negotiations over the funding split with the province under the former Liberal government — said Queen’s Park held all the cards during those talks.
“I think we tried to get as much as we could for the municipalities, but that is totally on the call of the province,” he said. “They’re the ones controlling the pot, no pun intended.”
Tory said that in talks, the province has shown some sympathy for the idea the municipalities should not bear the bulk of extra costs.
“They have accepted the principle that we shouldn’t be put to a lot of extra expense.”
Tory said municipalities have no way to force the province to up the ante, besides dogged lobbying.
“I’m not going to be satisfied with hope,” he said.
“But my plan B would be to continue advocating,”