FISCAL NOTE
Date Requested: February 12, 2018
Time Requested: 01:49 PM |
| Agency: |
Health and Human Resources, WV Department of |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2516 |
Introduced |
HB4491 |
|
|---|
| CBD Subject: |
Health |
|---|
|
FUND(S):
N/A
Sources of Revenue:
Special Fund
Legislation creates:
Creates New Program, Creates New Fund:
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The purpose of this bill is to legalize the personal use and possession of cannabis by adults; providing for a county option election to allow for the production and sales in that county; providing for regulation by the Bureau of Health; authorizing an excise and local sales tax on cannabis; prohibiting underage use; and preserving current laws relating to allowing employers and property owners to prohibit use or possession.
This legislation, if passed, will require the creation of a new program within the Department's Cannabis office. It will operate alongside the Medical Cannabis Program and function under the direction of the recently hired Cannabis office director. Legal and financial support for the Medical Cannabis Program will also provide services for this new program at no additional cost. This new program will require a new HHR Program Manager to develop the program and provide oversight; field inspectors to perform onsite inspections of facilities; HHR Specialists to review applications, issue licenses, and ensure compliance, and administrative support to assist in carrying out program activities.
According to the Oregon Liquor Control Commission website at http://www.oregon.gov/olcc/marijuana/Documents/mj_app_stats_by_county.pdf, Oregon has received 3,504 marijuana license applications as of February 13, 2018 of which 1,720 licenses were approved and are active; 1,709 are still being processed; and 75 licenses have been surrendered. Oregon issued its first recreational marijuana license in April 2016.
Assumptions must be made in order to estimate revenue should this proposed legislation pass. The Department estimates it could receive 1,542 applications to operate Recreational Cannabis establishments (cultivation, testing, manufacturing, and retail) and issue approximately 1,508 licenses based on comparing 2016 U.S. Census population data of West Virginia (1.8 million people) with the State of Oregon (4.1 million people). The Department anticipates that approximately 20 of the applications to operate a Recreational Cannabis establishment received in FY2019 and 30 in FY2020 will be from Medical Cannabis facility applicants.
The Department estimates fiscal impact would be approximately $962,384 the first year and $1,005,723 ongoing. The legislation is estimated to generate revenue of $9.4 million the first year and $7.5 ongoing.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2018
Increase/Decrease
(use"-") |
2019
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
962,384 |
1,005,723 |
| Personal Services |
0 |
839,675 |
839,675 |
| Current Expenses |
0 |
122,709 |
166,048 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
9,422,500 |
7,540,000 |
Explanation of above estimates (including long-range effect):
Estimated Personal Services costs for FY2019 and ongoing is $839,675 and include salaries and fringe benefits. Salaries, totaling $576,486, include 1.00 FTE HHR Program Manager II ($59,478) to manage the program; 4.00 FTEs HHR Specialists (4 FTEs x $39,522 = $158,088) to review applications and issue and renew licenses; 6.00 FTEs Field Inspectors, similar to the classification of an Environmental Inspector (6 FTEs x $44,412 = $266,472), to perform onsite inspections across the State; 1.00 FTE Inspector Supervisor, similar to the classification of an Environmental Inspector Supervisor ($52,926), to train and supervise field staff; and 1.00 FTE Administrative Services Assistant III ($39,522) to provide clerical support. Fringe benefits, totaling $263,189, include Public Employees Health Insurance Administrative fees of $650 ($50 per employee x 13 FTEs); Personnel Administrative fee of $2,340 ($180 per FTE x 13 FTEs); Health Insurance of $119,964 ($9,228 per FTE x 13 FTEs); Social Security of $44,101 ($576,486 x .0765); Retirement of $63,413 ($576,486 x .11); Workers Compensation of $2,145 ($576,486 x $.00372); and WV OPEB Contribution of $30,576 ($2,352 per FTE x 13 FTEs).
Estimated Current Expense costs for FY2019 is $122,709 and ongoing is $166,048 and includes landline telephone service at $7,800 ($50 per month x 12 months x 13 FTEs); cell/smart phone service at $5,040 ($60 per month x 12 months x 7 cell/smart phones); iPad service at $5,040 ($60 per month x 12 months x 7 iPads); office supplies at $1,300 ($100 per FTE x 13.00 FTEs); dedicated fax line at $600 ($50 per month x 12 months); office space rental for field inspectors positioned regionally across the State at $21,600 ($300 per month x 12 months x 6 Inspectors); and in-state travel for performing onsite inspections of cultivation, manufacturing, testing, and retail establishments at $63,029 (150 miles per inspection trip x $0.545 per mile x 771 inspections). One-time costs for FY2019 are $18,300 and include desktop and laptop computer equipment and monitors at $11,700 ($900 x 13 FTEs); iPad equipment at $2,100 ($300 x 7 iPads); cell/smart phone equipment at $2,100 ($300 x 7 cell/smart phones); fax machine at $400; network printer at $500; desktop printers at $1,500 ($250 x 6 desktop printers). Beginning in 2020 there will be an additional 754 licensed establishments to be inspected at $61,639 (150 miles per inspection trip x $0.545 per mile x 771 inspections).
Assuming that each establishment is required to submit an application and pay the $5,000 application fee reflected in this proposed legislation regardless of the number of facilities or stores the establishment owns and operates and the Department receives one-half (771) of the 1,542 applications in FY2019 and the remaining 771 in FY2020, revenue from application fees would be $3,765,000 in FY2019 ($5,000 application fee x 751 applications from new applicants, plus $500 x 20 applications from existing Medical Cannabis applicants) and $3,720,000 in FY2020 ($5,000 x 741 applications from new applicants, plus $500 x 30 applications from existing Medical Cannabis applicants) As per §16A-17-6(a)(2) of the proposed legislation, department is interpreting that 50% of application fees collected are to be retained by the Department with the remaining 50% to be distributed to the counties and municipalities in which the applicants desire to operate. The Department would retain $1,882,500 in FY2019 and $1,860,000 in FY2020. As per §16-17-7 of the Bill, no revenue from excise and sales taxes will be available for Cannabis program operations.
License terms, license fees, and renewal license fees are either absent or unclear in this proposed legislation. The Department is presuming that a separate initial license fee can be established, as outlined for Medical Cannabis permits, with a license term of one year that is renewable annually. The initial license fee would be $10,000, with renewal license fees at $5,000. Assuming that the Medical Cannabis one year term and license fee schedule applies under this legislation and the Bureau issues one-half (754) of the estimated 1,508 initial licenses in FY2019 and the remaining 754 in FY2020, revenue from initial license fees would be $7,540,000 ($10,000 license fee x 754 licenses) per fiscal year if the license fee is determined to be non-refundable with the Cannabis Program retaining 100%.
Following the methodology used for approximating revenue from application and initial license fees, the Department estimates revenue from license renewal fees in FY2020 for the 754 original licenses issued in FY2019 would be $3,770,000 ($5,000 x 754 license renewals) if the renewal fee is determined to be non-refundable with the Cannabis Program retaining 100%.
Upon full implementation of this new program and beginning in FY2021 and continuing for each fiscal year thereafter, the Department would renew the1,508 licenses that were originally issued in FY2019 and FY2020 and estimates revenue for FY2021 and ongoing fiscal years would be $7,540,000 ($5,000 renewal license fee x 1,508 licenses) if the renewal fee is determined to be non-refundable with the Cannabis Program retaining 100%.
Memorandum
It is important to note that should HB4491 become effective, it will have a negative effect on the Medical Cannabis Program activities and revenue. The application fee under this proposed legislation is $5,000 versus the Medical Cannabis application fee of $50,000.
The Department is unclear about the term "Department" reflected throughout HB4491. The term "Department" in the Definitions section (Page 3, Line 31) of HB4491 refers to the Department of Revenue only. However, the word "Department" is included in passages referring to applications, fees, and rules which would apply to the Department.
A required application fee of $5,000 is included in HB4491, but license and renewal license fees are not reflected in this proposed legislation. Additionally, it is unclear if fees are refundable or non-refundable which could greatly impact revenue collections.
It is unclear in HB4491 if an establishment that owns and operates multiple facilities or stores will be required to pay one fee (application or license) that covers all of its facilities or stores or if the intent of this legislation is to require a separate fee for each facility or store.
This proposed legislation requires the Department to adopt legislative rules necessary for implementation of HB4491 no later than July 1, 2018 and begin accepting and processing applications by October 1, 2018. Should HB4491 pass and become effective upon passage, it is likely that this new program would start prior to funds being available to hire staff and before Rules can be written. It is important to note that the Department will need time to write rules and hire staff to create and develop this new program before any applications can be accepted or processed.
Person submitting Fiscal Note: Bill J. Crouch
Email Address: Bill.J.Crouch@wv.gov