Metro

Lawmakers could tap emergency fund for pot regulation

FILE - AUGUST 29: The U.S. Justice Department said August 29, 2013 that it wouldn't sue to challenge laws legalizing marijuana in 20 states. DALY CITY, CA - APRIL 18: Leaves of a mature marijuana plant are seenin a display at The International Cannabis and Hemp Expo April 18, 2010 at the Cow Palace in Daly City, California. The two day Cannabis and Hemp Expo features speakers, retailers selling medical marijuana smoking paraphernalia and a special tent available for medical marijuana card holders to smoke their medicine. Voters in California will consider a measure on the November general election ballot that could make the State the first in the nation to legalize the growing of a limited amount of marijuana for private use. (Photo by Justin Sullivan/Getty Images)

Getty Images

State lawmakers, scrambling to pay for regulators to oversee the nascent recreational marijuana industry, may turn to a controversial source: the state’s emergency savings account, meant only for fiscal crises.

Senate President Stanley C. Rosenberg is floating the idea of borrowing the cash and paying it back with revenue from taxes on retail pot sales after they begin in 2018. But Treasurer Deborah B. Goldberg, who will be the state’s top marijuana regulator, and Governor Charlie Baker are cold to the idea. And Speaker Robert A. DeLeo, who controls the House of Representatives where any such maneuver must begin, declined to comment on the matter Wednesday.

Advertisement

There is precedent for such a move. The state took $20 million from the rainy day fund after casino gambling was legalized for startup and operational costs of the Massachusetts Gaming Commission. That money was later paid back with casino license fees.

Startup costs for marijuana regulation could cost even more, perhaps up to $30 million.

Get Fast Forward in your inbox:
Forget yesterday's news. Get what you need today in this early-morning email.
Thank you for signing up! Sign up for more newsletters here

“We set up the Gaming Commission with a loan from the [rainy day] fund and it worked,” Rosenberg, an Amherst Democrat, said in a statement. “It could be an option for recreational marijuana as well. Whatever we decide, we expect to be fully reimbursed for the costs from the revenue generated by marijuana sales.”

The voter-passed legalization initiative calls for the treasurer to create a significant new bureaucracy to regulate the recreational marijuana industry. The measure mandates she appoint a three-person Cannabis Control Commission by March 2017. That agency is likely to be staffed by lawyers and accountants, enforcement agents and technology gurus.

The ballot question, however, didn’t create a way to pay for those regulators in the 13 months before pot tax revenue is slated to start flowing into state coffers. And the $39 billion state budget is already stretched thin.

Advertisement

That’s why Rosenberg has suggested tapping the state’s emergency account, stocked with $1.3 billion as of the end of October.

That account, also known as the stabilization fund, is meant as a final bulwark against extreme cuts to state services when the economy goes sour.

But even as the Massachusetts economy recovered from the Great Recession, policy makers drained or diverted billions meant for the fund.

That brought opprobrium from fiscal watchdogs, including one top bond-rating agency whose ratings help determine how much it costs for Massachusetts to borrow money.

But a loan that would be paid back could get a pass, given the pinch the state finds itself in.

Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, has urged legislators to stop draining the rainy day fund.

But a $20 million to $30 million loan to set up marijuana regulation would be “reasonable for this one time,” she said.

“If you don’t have a funding source — which they don’t — and you have a tight budget — which they do — the stabilization fund is really your only option,” she said. “Unfortunately, the ballot initiative did not provide a funding mechanism for all those upfront costs.”

Still, McAnneny emphasized, the money must be a loan that is paid back soon after pot tax revenue begins flowing. And the terms and conditions of that loan have to be transparent, so fiscal watchdogs like bond rating agencies know the money will be repaid and available for tough fiscal times.

Noah Berger, president of the liberal-leaning Massachusetts Budget and Policy Center, has, for years, chastised the Legislature for spending money from nonrecurring sources such as the rainy day fund. But he agreed Rosenberg’s idea is “not an unreasonable thing to do.”

Berger said Massachusetts faces “a classic situation where it’s very important you set up a regulatory agency before the activity begins, but that creates a real cashflow issue. The most essential thing is being transparent so it’s clear to the public and the ratings agencies what’s happening and why.”

But two top pols, the Republican governor and Democratic treasurer, aren’t keen on the idea.

Asked if the governor is amenable to drawing from the rainy day fund to pay for upfront regulation costs with the money paid back at a later date, Baker spokeswoman Lizzy Guyton responded with a single word.

“No,” she wrote in an e-mail.

And, in a statement, Goldberg, who both supervises bond sales and will regulate the retail pot industry, pooh-poohed the rainy day fund as a source of funding for the Cannabis Control Commission.

“I have said we should not take money from the stabilization fund for this,” she said. “We are willing to work with the Legislature to seek alternative startup funding.”

Chandra Allard, a Goldberg spokeswoman, said the treasurer’s office is still calculating upfront costs and is not yet able to provide a figure.

But State House insiders and outside analysts have pegged a very tentative range for upfront costs between $15 and $30 million.

Washington state, one of the seven other states where voters have approved marijuana legalization, budgeted $7.4 million for pot regulation startup costs, ranging from staff to technology to consultants.

The Massachusetts ballot measure, approved by more than 1.7 million voters on Election Day, legalizes marijuana for home-growing, possession, and use on Dec. 15. It authorizes retail stores to start selling pot in 2018.

There is a twist, however.

Some Beacon Hill insiders fret that the Trump administration may crack down on recreational marijuana industry. Pot remains illegal under federal law, even as voters in eight states have legalized the drug.

If the federal government were to go after existing pot stores in states such as Colorado, it could stop the Massachusetts retail industry from ever getting off the ground. That could mean no stores, no customers, and no marijuana tax revenue.

And if that happens, the money borrowed from the rainy day fund might never be paid back.

Joshua Miller can be reached at joshua.miller@globe.com.
Loading comments...
Real journalists. Real journalism. Subscribe to The Boston Globe today.