Tax provisions could trip up Costa Mesa marijuana proposals

When it comes to the possibility of medical marijuana returning to Costa Mesa, City Hall is finding itself in a legal morass, caught between California’s Constitution and its election code.

At stake during Tuesday’s City Council meeting are two medical marijuana petitions, both recently certified by the county registrar as having enough valid signatures to qualify for a citywide special election.

If approved, each of the petitions would allow storefront dispensaries to openly operate in a town that has banned them since 2005, though some operated anyway until federal shutdowns in 2012.

According to the city attorney’s office, however, both petitions call for a new tax, and this is creating a kind of unusual scheduling problem.

The state Constitution, as amended by Proposition 218 in 1996, requires that any new taxes be voted on during an election in which a city’s governing body — in Costa Mesa’s case, the City Council — is being chosen by voters.

That means the medical marijuana petitions couldn’t be on another Costa Mesa ballot until the next council race, two years from now — or Nov. 8, 2016.

But under the state election code, Costa Mesa, having received two bona fide petitions, essentially has to initiate a special election.

“There’s clearly a conflict between the election code and the state Constitution as to when the election needs to occur,” said Deputy City Attorney Chris Neumeyer.

Calling the scenario “somewhat of an unusual situation,” Neumeyer said it is rare for a citizen-sponsored petition to actually raise taxes.

Both petitions call for a 6% tax on the medical marijuana businesses. One of them asks for a 1% tax on “the sale of all other tangible personal property at retail,” which could mean marijuana-related items sold within the dispensary.

Marijuana-related proposals in Santa Ana, Palm Springs and other cities came up for a vote during general elections, so there wasn’t a conflict, Neumeyer said.

Neumeyer said the Costa Mesa marijuana petitioners may not be keen on having to wait two years to see their proposed laws go before voters.

But if the city puts a tax on a special ballot, anti-tax groups that are vigilant about upholding Proposition 218 may cry foul. Litigation could arise.

Neumeyer noted a possible solution. A new tax could be decided on during a special election if the council unanimously declares a “fiscal emergency” and says the tax is needed. This is unlikely given the city’s continued budget surpluses.

On Tuesday, the council will have several options regarding the petitions.

It could adopt one of them but would not legally be allowed to change any elements of the plan, including the taxation portion, and “the matter of voter approval of the new general taxes” would remain, according to a city report.

“That is a key part of understanding the situation here,” Neumeyer said, referring to the council not being able to cherry-pick parts of a proposal.

The council could also ask for a special report, which would be due in 30 days, on the potential effects of marijuana dispensaries.

Lastly, the council, without the report or after receiving it, could call for a special election. City officials say the election could cost as much as $280,703 and would take place in February or March.

The special election ballot could contain both initiatives and even a third one created by Councilman Gary Monahan earlier this year. Monahan’s law, which the council examined in August, failed to find any council support and was never approved for the Nov. 4 election ballot.

Monahan’s proposal would not have restricted the number of dispensaries, though it would have given substantial city control over their operations.

One of the petitions — titled Act to Restrict and Regulate the Operation of Medical Marijuana Businesses, or ARRO — would permit up to eight dispensaries at least 600 feet apart. The second petition, represented by Los Angeles-based attorney David R. Welch, would allow four dispensaries, with the council’s discretion to add more, that are least 1,000 feet apart.

When asked about the conflict, Welch said, “At this point, we’re still trying to figure out how to resolve this inconsistency. We’d like to find a consistent way to push forward a special election.”

Each petition gathered the names of at least 15% of the Costa Mesa electorate, or 7,385 registered voters, which qualified them for a special election.