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Several years ago, Santa Ana hatched an idea to pump money into some of its most underfunded — and neglected — quality of life areas by capitalizing on a product that some in town didn’t support, but which still existed in the community anyway: recreational marijuana. 

In 2018, officials asked voters to decide whether commercial cannabis should be allowed, placing Measure Y on the ballot. Their answer was “Yes,” and now City Hall licenses, regulates and taxes the legal cannabis shops operating in the city.

That same year, the city established a “public benefit fund” through which all the new annual cannabis tax revenue would be allocated to libraries, park improvements, and youth services. 

Since that policy shift, a drug with public safety stigmas has essentially given the city some advantage on bridging funding gaps in historically underfunded priorities, and has even earned praise from the Orange County Grand Jury in a new June 3 report.

Grand jurors noted “there has been no apparent increase in criminal activity in the areas surrounding the retail adult-use cannabis dispensaries.”

But questions remain. Namely, a big chunk of that money from the cannabis public benefit fund also goes toward “enforcement” activities by code enforcement and the police department for what are supposed to be efforts to combat illegal, unlicensed dispensaries in the city. 

Grand jurors in their report noted the city’s expenditures in the enforcement realm aren’t all that transparent.

“The OCGJ (Orange County Grand Jury) learned that there is no clearly identifiable accounting for residents to see how this money is spent,” the report reads, later adding it’s “been difficult to secure specific information about how the money for enforcement services has been used.”

Grand jurors in their report argue “there is no true, viable oversight regarding disbursement and use of cannabis money received.”

“Interviews with city staff indicated that various departments rely on Measure Y funds for their enforcement efforts … OCGJ has not received a clear breakdown of how the enforcement services money has been used by the various city agencies,” the report reads.

Voice of OC asked City Hall about these transparency concerns. 

While city spokesperson Paul Eakins said the city has 90 days from the publication of the grand jury report to legally respond in court, he provided a breakdown of recent fiscal years’ revenues and expenditures out of the cannabis public benefit fund in an email. 

In this current fiscal year, for example, the city is estimated to spend $9.6 million on youth services and libraries while also spending $3.4 million on enforcement and administrative costs. Within that enforcement realm, the city spreadsheet breaks down among which departments that money was divided: 

  •   $987,350 for the City Attorney’s office for attorney time and court filings related to the enforcement of commercial cannabis laws.
  •   $354,030 for the Finance and Management Services Agency, whose expenses are largely for the collection and audit of cannabis business tax.
  •   $645,789 for the Planning and Building Agency, whose expenses are largely for code enforcement.
  •   $1,425,980 for the Police Department, whose expenses are meant to be for law enforcement activities. 

Officials like City Council member David Penaloza wonder whether those city departments could be taking up precious cannabis sales tax revenue which could be going more to youth, parks and library programs. 

“At the time (the measure was passed), we did have hundreds of illegal dispensaries that needed to be addressed,” Penaloza said in a June 3 interview. “Is there still a need for that much of a chunk to go to enforcement?”

Mayor Vicente Sarmiento agreed, recalling recent remarks he made at a budget hearing this month recommending the city revisit its enforcement spending of those cannabis dollars. 

“There could be some shifting and adjusting of funds where we could reduce the enforcement side — not get rid of it, but reduce and shift it more toward youth programming,” he said. “What we initially forecasted to be in that cannabis fund is probably half of what’s in there now.” 

Over the last two years, total city revenues from the commercial cannabis tax have topped $20 million.

“Nobody knew how fast the revenues were going to grow,” Sarmiento said. 

Before Santa Ana legalized commercial cannabis shops, recreational marijuana was already legalized across California by 2016. Plus, the city already allowed and taxed the sale of marijuana for medicinal purposes — money that went straight to city coffers. 

On top of that, commercial cannabis shops were still running in town illegally, around that time.

During the coronavirus pandemic, commercial cannabis taxes remained a steady stream of revenue for the city at a time when few others did. 

And while other cities have begun to explore the idea through measures like authorizing cannabis distribution and labs around the county, no other city has come as far as Santa Ana. 

“Santa Ana has remained the only city in Orange County issuing business licenses and regulating the retail sale of adult-use cannabis for the years 2018, 2019, and 2020,” grand jurors wrote in their report. 

“The city was seen as the black sheep in the county allowing retail cannabis,” Penaloza said. 

“It’s a stream we did not expect to do as good as it did and it’s tripled. Overall, I am thankful we do have it.”

Still, he warned against cannabis money becoming a fiscal crutch to address the city’s shortcomings on historically under prioritized spending areas: “I don’t want staff to rely heavily on cannabis to fund youth services.”

Brandon Pho is a Voice of OC staff writer and corps member at Report for America, a GroundTruth initiative. Contact him at bpho@voiceofoc.org or on Twitter @photherecord.

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