The business case for legalizing pot
Monday, Apr 24, 2017 - Posted by Rich Miller
* My Crain’s Chicago Business column…
Let’s get something straight right off the bat: Legalizing marijuana will not solve Illinois’ horrible budget deficit problem. It won’t solve our crime problem. It won’t solve our unemployment problem. It won’t solve our high property tax problem.
There are no magic elixirs for Illinois. One solution won’t fix all that ails us because, bluntly, too much ails us. But legalization is a practical step forward.
Illinois needs at least $6 billion in revenue and cuts to balance its budget. In September 2015, Gov. Bruce Rauner sent a memo to state lawmakers claiming that if Illinois had just an “average” unemployment rate and an “average” gross state product, and if we could convince people to stop moving away, we’d see $500 million in annual state tax growth. He said he could achieve that growth by implementing reforms like reductions to workers’ compensation benefits and restrictions on lawsuits.
But Rauner’s projected revenue growth could be almost matched or even surpassed by legalizing marijuana, which analysts say could funnel $350 million to $700 million a year to state coffers. The governor has held up budget negotiations for two years until he gets his reforms, and the state has gone deeply into debt. Our social services network is falling apart, and our universities are crumbling. I think some of the governor’s reforms have merit, but he doesn’t have the only solutions.
A few things. First, please click here to read the rest before commenting because there’s lots more to this argument. Second, you’ll note that I’ve gone back to referencing the governor’s 2015 revenue projections for his Turn Around agenda. He said a year ago that he’d be releasing updated projections, but he hasn’t ever done that. So, they’re the only numbers we have and they were relevant to my column. Third, tort reform and other items have since been removed from his agenda, so his $500 million estimate is probably too high. Fourth, Rauner’s revenue projections are long-term, while legalizing marijuana could produce much faster fiscal results.
- SOIL M - Monday, Apr 24, 17 @ 9:42 am:
Very good article, once again. One big thing to point out, as you did, is that if Illinois would lead in legalization instead of lag behind trends as is often the case the positive effects would be increased. I especially liked the reference to the Southern IL wine trail. The increase of tourism to this area would continue even if surrounding States followed suit, but waiting for other States to legalize first would not bring new visitors to these areas. Good job presenting facts without a lot of the usual over statements that hurt discussion for both sides.
- corvax - Monday, Apr 24, 17 @ 9:44 am:
“…bluntly…” I like it
- Curl of the Burl - Monday, Apr 24, 17 @ 9:55 am:
People who go on social media and proclaim that legalizing pot will turn Illinois around fiscally crack me up. It will help but not nearly that much.
- Last Bull Moose - Monday, Apr 24, 17 @ 10:04 am:
Good points. Legalisation would immediately increase the reported State income and employment. Much of this activity happens now, but it is off the books and is not counted. I expect that any form of legalisation will also increase total consumption, but measuring the physical increase will be difficult since the current consumption is not known with precision.
I would prefer a system where there are no marketing dollars to promote consumption. We have not been able to stop the marketing of tobacco.
- Grandson of Man - Monday, Apr 24, 17 @ 10:11 am:
Excellent article,
The business/revenue aspects of legalization are powerful motivators to me. If we legalize and allow people to grow a few plants, that’s economic growth in different ways, via dispensaries and home growing supplies.
There are more ways to improve the state’s fiscal condition beside trying to enact Rauner/IPI proposals. We don’t need to go in those directions if we legalize marijuana, among other ideas. We can create jobs, take in lots of tax revenue and stop trying to take away collective bargaining rights and prevailing wage. We can also expand MMJ.
- Liberal Elite - Monday, Apr 24, 17 @ 10:12 am:
There’s also a first-mover advantage available for the first state in the Midwest to legalize - likely it will be us, but the sooner we do so, the bigger that advantage is in terms of long-term revenue.
- Anonymous - Monday, Apr 24, 17 @ 10:19 am:
Legalization should have a slate cleaning effect on the unfair/selective arrests of recreational use and its attendant costs to taxpayers. It’s here to stay, there will be some gain$
for the state, but it would be wise to not over-estimate or over promise. There may be costly downsides to it that haven’t been recorded or studied since it’s in its relative infancy as a broadly used, additional mind altering substance. We’ll see, eh?
- Anonymous - Monday, Apr 24, 17 @ 10:47 am:
Until the Feds change its status,anything we do on the State level is playing with fire, and possibly risking federal grants
- anon2 - Monday, Apr 24, 17 @ 10:53 am:
=== I would prefer a system where there are no marketing dollars to promote consumption. We have not been able to stop the marketing of tobacco. ===
There’s the rub. If there is commercial legalization, keep in mind that corporations have the same constitutional rights as persons, according to the SCOTUS. That incluces freedom of speech to advertise far and wide. That’s why other forms of legalization are preferable to commercial legalization on the tobacco and alcohol model.
There is a conflict between maximizing state revenues and protecting public health. We maximize revenues if we boost consumption. But a big increase in consumption, particularly with more people becoming dependent, has deleterious effects.
- Lucci - Monday, Apr 24, 17 @ 11:20 am:
Rich,
I’d be careful about comparing the projected $350-$700 mil increase in tax revenues vs the increased tax revenues due to broader economic growth.
There’s no way the tax revenue gain from legalizing pot would match the same “organic” tax revenue gain of a stronger growing economy.
Part of the reason that comparison is trouble is because the $350-$700 mil is a one-time “additional” gain, with marginal increases in revenues on going-forward years [i.e. $400mm year 1, $420mm year 2, $441mm year 3, etc]
Whereas the revenue gains from economic growth are permanent and more multiplicative. For example, if out-migration slowed the state might save 40,000 people per year every year. So in year 2 that’s a permanent gain of 80,000 people; year 3 that’s a permanent gain of 120,000 people, etc.
Rauner’s $500mm/yr number puts a few different pieces together that more or less relate to personal income. Set Rauner’s numbers aside for a second.
IL’s personal income growth is 2.8% over last decade compared to 3.5% nationally. That means IL’s personal income grows by $18.8 bil/yr at Illinois rates [2.8% of $670 bil], and would grow by $23.5 bil/yr at US rates [3.5% of $670 bil], so IL’s annual loss in personal income growth is $4.7 bil/yr every year for being below average.
That loss compounds to be $4.7bil in year 1, $9.4 bil in year 2, $14.1 bil in year 3, etc.
So if you’d gain $500mm in additional tax revenue off that $4.7bil annual increase in personal income growth, then the tax revenue would compound & be an additional $1bil in yr 2, $1.5 bil in yr 3, etc. Because you would keep gaining the additional $4.7bil/yr in personal income every single year if you keep matching the average US growth rate.
By comparison, marijuana would add $400 mil year 1, $420 mil year 2, $441 mil year 3, etc.
- A guy - Monday, Apr 24, 17 @ 11:25 am:
Makes a lot of sense….Dude.
- Amalia - Monday, Apr 24, 17 @ 11:44 am:
good column. we were discussing the benefits of legalization at my house and we did not think of the Midwest destination focus. very good point. there’s money to be earned legally with this in many ways, and less money to be spent on the whole criminal justice stream o needs plus taking things out of the hands of some very bad people. and, why not pot? it always treated my body better than liquor!
- rjm - Monday, Apr 24, 17 @ 11:48 am:
Great article. But what puts the lie to Rauner’s turnaround agenda is that there is an cannabis industry in this state that’s been in effect for 18 months and serves 20,000 patients, employs thousands and has generated well over $5m in taxes and fees for the state. Since 2015 when Rauner was sworn in as Governor, I don’t know that there is another industry in the state that has added as many new jobs and revenue all while helping patients relief pain and reducing opioid use. One would think that someone pushing a turnaround agenda would support this program instead of trying to regulate us out of business, but that’s exactly what’s been going on. To date, Rauner’s IDPH has not sent a single communication to Illinois citizens or physicians about the program, and has denied every condition that was legally approved by the Medical Board claiming more research is needed. If that’s the case, then why aren’t the excellent research facilities in Illinois researching the legally available cannabis in Illinois or collecting data on the patients who are using it? This is a perfect example of Rauner saying one thing but doing the exact opposite and someone needs to ask him about this.
- Mad dog - Monday, Apr 24, 17 @ 12:04 pm:
Have to beat Michigan to the punch. All states that touch Illinois will participate. Let’s not forget hemp production for southern Illinois too. We need all hands on deck.
- Ron - Monday, Apr 24, 17 @ 12:15 pm:
Just legalize it already. What a waste of time and resources not doing it.
- Grandson of Man - Monday, Apr 24, 17 @ 12:23 pm:
Stars, please align so that legalization is imminent. The first challenge is to get 60 and 30 in the GA. Will there be enough Democratic yes votes to get it movin’?
- Last Bull Moose - Monday, Apr 24, 17 @ 12:44 pm:
Lucci,
The gap analysis between what Illinois is doing and the national average is a starting point, not a particularly meaningful analysis in itself. Gap analysis is used to set up questions about why the gap exists.
The major driver in differences across states or regions is often demographics. Is Illinois aging more than the national average? Are the people retiring in Illinois being replaced in the work force by people with comparable or better education?
Then you ask if there are major industries that drive the results. North Dakota lost population for decades until the oil boom reached the state. Radial tires hurt Decatur, when tires last 4 times as long, people only need to produce 1/4 as many.
Can government be a differentiating factor? Of course it can. But to claim that government is the primary factor causing the difference, one needs facts. I have not heard anyone present the facts.
- striketoo - Monday, Apr 24, 17 @ 12:45 pm:
“…anything we do on the State level is playing with fire…”.
Yeah, right. We can see the smoke from Colorado.
- Lucci - Monday, Apr 24, 17 @ 5:43 pm:
Last Bull Moose,
That’s interesting, however my point was to caution on comparing the additive effect of marijuana on the tax base verses one the more multiplicative effect of increased economic growth on the tax base.
I was simply taking the arguments as they were and cautioning against the convolution of two different mathematical effects. I wasn’t arguing why the gap exists or that government is a major driver of the gap, though I certainly would and have argued that.
I agree that a wide variety of factors effect economic outcomes. My argument is that Illinois is on the losing end of almost every trend, from demographics to relative industrial sector performance to relative attractiveness of the state’s physical nature to failed governance/taxes/regs.
The only one we know we can do something about is the failed governance/taxes/regs.
I suggest you read some of my writing or tweeting if you haven’t seen a well-constructed set of facts about government being a primary cause of the ongoing & worsening Illinois difference!
- Veil of Ignorance - Monday, Apr 24, 17 @ 5:44 pm:
My only critical feedback was that this article should’ve been posted earlier…like on 4/20. Sorry couldn’t resist.