Joseph Krist

Publisher

This week we highlight California’s efforts to refine its taxation of legal cannabis to improve the competitive position of the legal market. Other states are moving on the path to legalization. The evidence to support gas tax holidays is pretty thin. Municipal utilities try to navigate the opposition to natural gas. College enrollment trends raise caution flags. This week’s chart details employment in the transportation industry. We update legal issues in Pennsylvania and Hawaii.

______________________________________________________________________

CA CANNABIS TAXES

Assembly Bill 195, was signed on June 30 after receiving broad bipartisan support in both houses of the state legislature. California’s cultivation tax of more than $161 per pound of cannabis flower will be eliminated completely. The bill, which marks a significant change to California’s tax structure for the legal marijuana industry, maintains the cannabis excise tax at its current rate of 15% for the next three years, after which the rate could be adjusted to replace revenue lost due to the elimination of the cultivation tax.

It also creates new tax credits for some cannabis businesses and transfers responsibility for collecting the cannabis excise tax from distributors to retailers. The changes are designed to reduce the tax burden on licensed growers and encourage more competition to the illegal market. Taxation issues around both the level of tax and the collection methods were seen as real hurdles for the legal market.

The other major issue associated with legalization is that of “social equity”. The bill seeks to address those issues through a $10,000 tax credit for social equity cannabis businesses and provisions which allow social equity retailers to keep 20% of the cannabis excise tax they collect for a period of three years. 

CANNABIS ON THE BALLOT

The move to lower tax impediments to a fully legal market in California are being followed by two efforts to legalize cannabis in Oklahoma. The first is the Oklahomans for Sensible Marijuana Laws (OSML) campaign. It hopes to have a vote after it had turned in over 164,000 signatures to the secretary of state’s office. They need 94,911 of the submissions to be valid in order to qualify the proposed statutory amendment.

The measure would allow adults 21 and older to purchase and possess up to one ounce of cannabis, grow up to six mature plants and six seedings for personal use. The current Oklahoma Medical Marijuana Authority would be responsible for regulating the program and issuing cannabis business licenses. A 15 percent excise tax would be imposed on adult-use marijuana products, with revenue going to an “Oklahoma Marijuana Revenue Trust Fund.”

The funds would first cover the cost of administrating the program and the rest would be divided between municipalities where the sales occurred (10 percent), the State Judicial Revolving Fund (10 percent), the general fund (30 percent), public education grants (30 percent) and grants for programs involved in substance misuse treatment and prevention (20 percent).

A competing group still has time to gather signatures for its petition for its campaign’s recreational legalization proposal would allow adults 21 and older to possess up to eight ounces of marijuana that they purchase from retailers, as well as whatever cannabis they yield from growing up to 12 plants for personal use.

Marijuana sales would be subject to a 15 percent excise tax, and the initiative outlines a number of programs that would receive partial revenue from those taxes. The money would first cover implementation costs and then would be divided to support water-related infrastructure, people with disabilities, substance misuse treatment, law enforcement training, cannabis research and more.

Other states in the middle of the country are likely to see ballot initiatives offered as the result of ongoing petition efforts. Arkansas voters would be asked to approve a measure to permit anyone at least 21 years of age to possess up to one ounce of cannabis. Additionally, Arkansas would grant its current medical shops permission to add adult-use sales on March 8, 2023. A lottery would also distribute 40 additional licenses for adult-use dispensaries, and municipalities would need to hold a referendum if they prefer to prohibit adult-use businesses. The measure does not include expungements of prior marijuana convictions. 

A proposed North Dakota initiative would allow those 21 years of age and older to purchase and possess a maximum of one ounce of cannabis, along with permitting adults to cultivate a maximum of three plants for personal use. Nebraska is its own story. In the Spring, lawmakers approved the cannabis legalization ballot language, clearing the procedural obstacle to begin gathering signatures. Nebraska cannabis advocates are not having problems getting the requisite total numbers of signees for their initiative. They are concerned with the requirement that those signatures “must come from a minimum of five percent of voters in at least 38 counties across the state.” 

GAS TAX HOLIDAY REALITIES

University of Pennsylvania researchers released an analysis of the impact of state-level gas tax holidays on prices facing the consumer. Maryland suspended its state tax of 36.1 cents per gallon on gasoline and 36.85 cents per gallon on diesel from March 18 to April 16 this year. Georgia suspended its state fuel taxes for 10 weeks from March 18 until May 31 including a tax of 29.1 cents per gallon on gasoline and a tax of 32.6 cents per gallon on diesel.

Connecticut suspended its state tax on gasoline of 25 cents per gallon from April 1 to June 30. New York’s gasoline tax holiday took effect on June 1 through the end of the year and suspend 16 cents per gallon of the state’s sales and excise taxes on gasoline (16.75 cents per gallon in MCTD region). Florida will not impose its 25.3 cents per gallon state gasoline tax from October 1 to October 31.

So, what did the consumer experience at the pump? The experience of the three states with completed programs is not consistent. After the gasoline tax holiday was enacted on March 18, Maryland saw a decline in gasoline prices that is statistically significant at the 5 percent level from March 19 until April 18. The decline also grew in magnitude from 12 cents the next day to a little below 30 cents from March 22 to April 16. After the gasoline tax holiday expired on April 17, gasoline prices in Maryland became higher than what they would have been if the gasoline tax holiday never occurred, although the difference was not statistically significant at the 5 percent significance level.

The price decline in Georgia, on the other hand, was more gradual and grew from 7 cents on March 24 to around 30 cents on May 16. Gasoline prices also declined immediately after the gasoline tax holiday went into effect in Connecticut and grew from 11 cents on April 2 to 23 cents on April 15. However, the decline shrank slowly after that to about 14 cents on May 16, even though the gasoline tax holiday would still be in place for another month and a half.

The data simply does not support the notion of an immediate price benefit just from suspension of the taxes. If it’s not doing what it is ostensibly intended to do – provide near-term price relief at the pump – then the loss of revenues to support transportation is much harder to justify.

THIS WEEK’S CHART

The unemployment rate in the U.S. transportation sector was 4.1% (not seasonally adjusted) in June 2022 according to Bureau of Labor Statistics (BLS) data recently updated on the Bureau of Transportation Statistics (BTS) Unemployment in Transportation dashboard. The June 2022 rate fell 2.1 percentage points from 6.2% in June 2021 and was just same as the pre-pandemic June level of 4.1% in June 2019. Unemployment in the transportation sector reached its highest level during the COVID-19 pandemic (15.7%) in May 2020 and July 2020.

This data accompanies data that shows that air traffic may be steadily increasing but the recovery of the airlines remains incomplete. The most recent TSA data shows that air travel remains at between 75% and 85% of pre-pandemic levels.

UPDATES

The Ninth Circuit Court of Appeals ruled to deny an appeal by fossil fuel companies to transfer climate change lawsuits to federal court. The suits were filed by the city and county of Honolulu and Maui County in 2020. Like the many other cases across the country, it accused the companies of exacerbating the effect of climate change on the islands to increase their own profits. The decision continues a streak of similar outcomes in legal challenges across the country.

In the wake of the recent Pennsylvania court decision which stymied the plans to fund bridge rehabilitation projects without tolls (MCN 7.11.22), the Legislature began to look at alternatives. This week, Gov. Tom Wolf officially signed a bill that puts more restrictions on how public-private partnerships can be established in the Commonwealth.

The bill specifically allows the state to move forward with the existing partnership so it doesn’t lose about $14.8 million in preliminary work PennDOT and the group had done over the past 18 months. The issue is not whether you use a P3 to accomplish the rehabilitation. The issue is that of tolling to generate funds. It was tried before to pay for improvements to I-80 in eastern Pa. but massive political backlash scotched that idea. The opposition to this plan is not a shock.

The Keystone State sees the issue of preemption arise again. Gov. Tom Wolf vetoed Republican-led legislation to stop municipalities from adopting building codes that prohibit natural gas hookups. The veto was framed as an issue of supporting local control and state regulatory authority.

SALT RIVER AND NATURAL GAS

The municipal power provider serving customers in greater Phoenix finds itself in the middle of the debate over natural gas as a “cleaner” generating alternative. Earlier this year, the Arizona Corporation Commission (ACC) did not approve the expansion of Salt River Project’s (SRP) natural gas fired power plant near the “environmental justice” community of Randolph.

SRP has requested that the ACC rehear Salt River Project’s (SRP) application to expand its that natural gas fired power plant.  The initial rejection was on technical grounds – the utility’s failure to show a competitive bidding process with an all-source Request for Proposal (RFP) specific to the project. 

It did not directly address the concerns about location. In June, the ACC voted 3 to 2 not to reconsider its April decision to reject SRP’s Certificate of Environmental Compatibility (CEC) to expand its Coolidge Generating Station from its current 12 gas turbines to an additional 16 for an additional 820 megawatts of power generation. The site was clearly established to accommodate an expansion so it is frustrating to SRP that it cannot move forward.

So, SRP has filed two lawsuits to revive the expansion effort. One case was filed in Maricopa County Superior Court, and a special action was filed with the Arizona Supreme Court to expedite the case which the Supreme Court declined jurisdiction. The Maricopa County case seeks to have the court reverse the ACC decision as unlawful and approve the CEC. It also asks for several precedent setting declarations including that the Commission does not have jurisdiction to evaluate a project’s effects on customer rates, may not deny a project based on environmental justice concerns.

While not regulated by the ACC the company must get its approval of a Certificate of Compatibility for power generation projects over 100k. And according to state law the ACC must consider factors like effects on wildlife, environment, noise levels historic sites and estimated costs.

COLLEGE ENROLLMENT TRENDS

Enrollment declines are worsening this spring. Total postsecondary enrollment, which includes both undergraduate and graduate students, fell a further 4.1 percent or 685,000 students in spring 2022 compared to spring 2021. This follows a 3.5 percent drop last spring, for a total two-year decline of 7.4 percent or nearly 1.3 million students since spring 2020. The declines this spring are also markedly steeper than they were last fall, when total postsecondary enrollment declined by 2.7 percent from the previous fall.

Undergraduate enrollment accounted for most of the decline, dropping 4.7 percent this spring or over 662,000 students from spring 2021. This is only slightly less than last spring’s 4.9 percent loss. As a result, the undergraduate student body is now 9.4 percent or nearly 1.4 million students smaller than before the pandemic. Undergraduate enrollment is also falling more steeply this spring than it was in fall 2021 (-4.7% vs. -3.1%). While all institutional sectors experienced varying degrees of enrollment declines, the public sector (two- and four-year colleges combined), which enrolled 71 percent of all students this spring, suffered the steepest drop, over 604,000 students.

In particular, community colleges fell by 7.8 percent (351,000 students), representing more than half of the total postsecondary enrollment losses this spring. Community colleges have now lost over 827,000 students since spring 2020.  Full-time student numbers fell by 3.8 percent (403,000 students), for a total two-year decline of 7.2 percent (787,000 students). For a second straight year, community colleges suffered double-digit declines in full-time students, amounting to nearly 11 percent (168,000 students) this year and 20.9 percent (372,000 students) for the two years since spring 2020.

Part-time enrollment across all sectors fell by 4.5 percent (282,000 students), resulting in a cumulative loss of 7.7 percent (501,000 students) since spring 2020. At private non-profit four-year institutions, part-time student enrollment dropped this spring (-4.1%), reversing last year’s gains (+2.8%). The privates, especially the smaller liberal arts schools, remain vulnerable to demographic trends and the economy.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.