Santa Barbara County is on track to have revenues that are $28.5 million above the general fund budget for the year ending June 30, budget director Paul Clementi said.

The “one dark spot” in this year’s revenues is cannabis taxes coming in $10.5 million lower than expected, he said during a budget update Tuesday to the Santa Barbara County Board of Supervisors.

Property tax revenues have come in much higher than expected so far this year, and the projected $17 million bonus has been fueled by higher assessed values and a lot of transfers in recent years.

The 8.1% growth in property assessed value was partly related a backlog in reassessments, so the county doesn’t expect a similar bump for the next year, he said.

Halfway through the current fiscal year, the Sheriff’s Office has spent $8.7 million on overtime expenses, well more than its $5 million budget, but the different is mostly covered by salary savings, Clementi said.

The deficits could grow in the next six months if there are more hires, because “overtime would still be needed and the salary savings are no longer there to offset it while new staff is onboarded and trained,” he told the board.

Filling the vacancies is the long-term goal, because the current level of overtime in the department is “unsustainable and having ripple effects and indirect costs not just within the department but in the time and resources supporting department are spending on this issue,” he said.

Another Year of Falling Cannabis Tax Revenues

In response to cannabis revenue news, county supervisors shared some of their frustrations with the status of enforcement and tax compliance.

The county spends about $5 million to administer the cannabis program, and the estimated revenues for this year ($5.8 million) wouldn’t leave much money to fund other county programs. Two years ago, operators paid $15 million in cannabis taxes.

Revenues are lower for lots of reasons, including lower wholesale prices due to a “supply glut,” operators deciding not to grow, and some operators dropping out of the permitting pipeline, said Brittany Heaton, cannabis program manager for the county. California businesses can’t sell product out of state, and only two of the county’s six permitted dispensaries have opened so far.

Twelve operators dropped out of the permitting process recently, Heaton said. Some didn’t have enough money to make infrastructure investments to come into compliance, and some didn’t meet deadlines to get permits.

“When we looked at the numbers of what those operators were paying in tax revenue, over the beginning of the program, because many of them were legal non-conforming operators, they paid in about 12% of the total revenues,” Heaton said.

Tax Compliance

In response to Supervisor Laura Capps’ questions about tax compliance, Heaton said 12 operators did not pay for the most recent financial quarter.

“Each quarter the various operators who don’t report, change. It’s kind of like whack-a-mole, right? We don’t have one operator not reporting over and over again, because that would be a compliance issue and taken care of,” Heaton said.  

The county investigates reports of zero gross receipts to see whether any taxable transfers were reported to the state, and has been seeing more revenue from that, Heaton added.

No licenses have been revoked for tax noncompliance.

“What happens often is there are back taxes that need to be paid, and guess what? They come in and pay them because they want their license renewed,” Heaton said. “And so there is a delay, but we haven’t had to revoke to date — but we would and we do have the ability to do that.”

Enforcement Update

Sheriff’s investigators confiscated about 1,900 plants and more than 500 pounds of cannabis products in the most recent quarter.

Sgt. Matt Banks of the Sheriff’s Office said the enforcement personnel are seeing more illegal indoor grows, and some of the recent investigations involved illegal delivery services and sales to minors.

In terms of enforcing compliance with permit and licensing terms, Planning & Development Director Lisa Plowman said it has been and will be complaint-driven.

The county would need to increase funding “if we were going to be doing proactive enforcement, meaning we were driving around and checking things rather than responsive to complaints,” Plowman said.

Several supervisors said they would support more aggressive enforcement of permit terms.

“I think I’ve been a voice all along saying that for this we really should bear the burden for enforcement ourselves the county and not expecting community members to do this,” Supervisor Joan Hartmann said.

“There’s security around these operations. It’s very difficult. How do we know it’s the acreage that we say, how do we know they’re harvesting only two or three times a year and within the periods that we say? These are the things we put in place to try and deal with some of the nuisance impacts of these operations and if we have no way really to oversee that then it seems to me we’re being very irresponsible,” she said.

Tension Over Cannabis Program Issues

The county’s cannabis program includes about 30 positions among enforcement, permitting and licensing.

Capps said she was concerned “that this is occupying a lot of people’s time at the expense perhaps of more pressing issues that affect more people in our county.”

Supervisor Steve Lavagnino and Supervisor Das Williams, who were on the ad hoc committee developing the county’s cannabis program, were defensive and pushed back on Capps’ remarks.

Cannabis revenue, Lavagnino said, “it’s up, it’s down. Right now, it’s down, so it’s I guess an easy target, but let’s remember where it’s been and where it’s projected to go,” Lavagnino said.

“It’s another revenue source almost as strong as (transient occupancy tax), and to tell someone that these 30 people are just sort of wasting their time on cannabis when we could be doing something else with them is just misleading,” he said.

Capps responded that he had put words in her mouth and said the trend of lower revenues “is a wakeup call and we need to be looking at changes,” not ending the program.  

Williams said he wondered whether Capps would be supportive of the cannabis program if revenues came in higher, at the $7 million or $8 million mark.

“Something to think about,” he said.

Supervisors voted 4-1, with Capps dissenting, to receive the cannabis tax, compliance and enforcement report.