JLARC - Committee Meeting
(November 29, 2023)

Here are some observations from the Wednesday November 29th Washington State Joint Legislative Audit and Review Committee (JLARC) Committee Meeting.

My top 4 takeaways:

• A 2022 law required JLARC staff to undertake a review of cannabis revenue and appropriations and how they had been modified since voters approved the legalization Initiative 502 (I-502) in 2012.
  • ​​SB 5796 ("Restructuring cannabis revenue appropriations”) was passed in 2022, modifying non-binding cannabis revenue appropriations and mandating a study of those expenditures by JLARC officials, which was subsequently added to the 2023-25 JLARC Biennial Work Plan. The bill language required “an examination on the appropriation and expenditure of these funds to evaluate: How these funds have been appropriated and expended; whether the appropriations and expenditures are consistent with the provisions of RCW 69.50.540; and whether information related to the appropriations and expenditures is readily available to the general public. The report shall include options for increasing the transparency and accountability related to the appropriation and expenditure of cannabis-related revenues.”
    • That October, JLARC staff had reached out to then-Washington State Liquor and Cannabis Board (WSLCB) Director of Legislative Relations Chris Thompson, and by November 2022 they’d offered proposed study questions.
    • On September 20th, JLARC staff described planning questions for a different study on economic impacts from the cannabis market to be conducted in 2024. WSLCB leaders talked about that effort on November 8th.
  • Ahead of the meeting, JLARC staff released a preliminary report, one page overview, and a YouTube video on the study.
  • Committee Chair Senator Mark Mullet introduced the subject, and welcomed Research Analysts Stephanie Seto, Melanie Stidham, and Ashley Trunnell (audio - 1m, Video - TVW)
  • Seto explained she would share the topic background and appropriations overview, while Stidham went over expenditures, and Trunnell looked into transparency around the information. Seto summarized, “the Legislative Auditor concludes that State and local agencies spent $3.3 billion from the Dedicated Cannabis Account between fiscal years 2015 and 2023. Spending was consistent with legislative direction, and opportunities exist to improve financial transparency” (audio - 2m, Video - TVW).
    • After providing some background on I-502 and ​​SB 5796, Seto indicated the Dedicated Cannabis Account, also called DCA, contained all “revenues from the cannabis excise tax as well as other fees related to cannabis sales,” though most of the funds were from the excise tax. She said WSLCB staff “administers the account and therefore deposits and collects revenues into it.”
    • Since 2021, JLARC had been expected “to evaluate racial equity considerations in all of its studies,” Seto remarked. Although “statute does not direct funds from the account to a particular racial or ethnic group,” she said “some of the funded programs did have race and ethnicity information about their participants. So when this information was available, we included it in appendix B of the report.”

• JLARC staff worked through the particulars of how cannabis dollars had been allotted by state lawmakers, where funds had gone, how Washington spending of cannabis revenue compared to other states, and why diffuse and obtuse public information throughout various state agencies left opportunities to improve transparency.
  • Appropriations (audio - 1m, Video - TVW, presentation)
    • Seto laid out how funds appropriated from the DCA were “based on a two-part formula,” and the “fiscal year 2023 formula [was] as follows:”
      • “First ten state agencies received specific dollar amounts for specific purposes.”
      • “Once the dollar-based Appropriations were made, the remaining funds were divided based on percentages…11% of the remaining funds…went to the Health Care Authority—or HCA—for a variety of purposes, including its substance use education and prevention programs. And most of the funds [were] distributed through the second part, this percentage-based part of the formula.”
    • Appendix A of their report featured “all of the appropriations that have been made each year and includes a downloadable file with exact statutory language and the applicable budget provisos,” said Seto.
  • Expenditures (audio - 1m, Video - TVW)
    • Stidham turned to how the $3.3 billion was spent by the State, finding “In general spending was consistent with legislative direction that was given through statute and budget provisos.” Staff organized all spending through one of seven categories “for easier comparisons and this table is the short answer to how funds were spent.”
      • Health care: 54% - $1,802,548,154 (audio - 2m, Video - TVW)
        • The Washington State Health Care Authority (WA HCA) received DCA money in “two appropriations…the bulk of the funds goes to the Basic Health Plan Trust Account,” while the second was “for contracts with community health centers” which were “part of a federal program that ensures access to health care for low-income and medically underserved populations.” Specifically, “HCA use[d] both of these appropriations to cover costs for children that are…low income and that are on Medicaid,” as well as for a “Managed Care Organization.”
      • General fund: 30% - $1,008,937,862 (audio - 4m, Video - TVW)
        • “While we can't track exactly what each dollar from the account that went to the general fund was spent on, we can say more broadly that general fund dollars go to things like [grade school] and higher education, human services, general government, and natural resources.”
      • Prevention, education, and treatment: 8% - $281,226,003
        • Also managed by WA HCA, this total included “funding that initially went to the Department of Social and Health Services when the unit was housed there.” Officials were required to spend money to develop “programs for youth substance use disorder, to develop programs or services around mental health, and to services for pregnant and parenting women.” Specific budget provisos “cover about half of the funds that they get every year” for things like “a community assistance grant such as HCA’s Community Wellness and Prevention Initiative” or another “to provide treatment for youth in residential centers.”
        • According to Stidham, the Washington State Department of Health (DOH) was “the other agency that receives the bulk of the funding in this category,” $74 million dollars between 2015 and 2023. “They have broad statutory language to develop an education and public health program around cannabis, vapor products, and tobacco,” and didn’t get money from other budget provisos, she stated. In 2022, Stidham mentioned money had gone towards “a hotline that's called Teen Link, media campaigns such as Start Talking Now and grants to local health departments or community organizations.”
      • Administration and enforcement: 3% - $104,728,632
        • “The majority of these funds was spent by [WSLCB] for administration and enforcement of the regulated cannabis market” while smaller sums went to the Washington State Patrol “for a drug enforcement task force that's focused on the illegal cannabis market, and then another example of a funded agency in this category is the Department of Agriculture [WSDA] and this is for laboratory analysis of pesticides and cannabis.”
          • Learn more about the WSDA staff interest in drafting legislation for 2024 to bring cannabis lab accreditation under their authority rather than the Washington State Department of Ecology.
      • Local government: 3% - $102,157,000
        • Revenue was “distributed across 239 cities, towns, and counties that do not explicitly prohibit a cannabis-related business.” When staff “surveyed all that had received $200,000 or more in fiscal year 2022 and we heard back from everyone,” learning
          • “16 were using them for general government purposes”
          • “Five specified that they're using them for law enforcement related activities.”
          • “One, King County, has started using their account funds… to support individuals that were affected by past cannabis enforcement laws. They're doing things like record expungement, and job training, and legal financial obligation relief.”
        • Appendix C included a dashboard letting people “select a local government and see exactly how much they received in any given year. It will also show the race and ethnicity information for a given county's population.”
      • Research: 0.3% - $8,415,654
        • Funds went to four entities: the Washington State Institute of Public Policy (WSIPP), WA HCA, the University of Washington (UW), and Washington State University (WSU). ”WSIPP is doing a benefit cost analysis of I-502, HCA does a regular survey of youth substance use including the Healthy Youth Survey, and then the University of Washington and Washington State University both receive funds to study the short and long-term effects of cannabis.”
      • Social equity: 0.04% - $1,308,161
        • A “relatively new” category, it accounted for “$1 million to date, and this is for social equity technical assistance grants and a roster of mentors for applicants of social equity licenses.”
    • Appendix B incorporated “more detail on all the entities that did receive funding including, when available, links to their programs,” Stidham indicated.
  • Other States (audio - 1m, Video - TVW)
    • As of July 2023, Stidham said staff had been able to compare Washington State to 23 jurisdictions where cannabis was legal, finding the state was one of eleven which had collected and distributed cannabis tax dollars. “We found that there's no standard for how states should or do spend or distribute their cannabis tax revenues,” she told the committee, “some states take a similar approach to Washington and spend the funds on a variety of things by a variety of entities, and others take an approach of they spend all the funding on one thing such as Nevada spends it all in education.”
  • Transparency (audio - 5m, Video - TVW)
    • Trunnell reported that there were some discrepancies between statute on cannabis appropriations and what officials were actually doing, and some confusion since “the statutory funding formula for the account…was amended eight times between 2015 and 2023.” She found that “some of the earlier changes to the formula made the formula more complex and may have contributed to some stakeholder concerns about transparency on where the funds were going.” SB 5796 both simplified the funding formula and maintained the funding levels, she added.
    • However, there were two modifications to existing statute that could remove uncertainty around how existing funds were allocated, argued Trunnell.
      • First, she commented “the majority of funding for healthcare is transferred to the Basic Health Plan Trust Account” even though this plan “was replaced by the expansion of Medicaid in 2014.” While the legislature had allowed WA HCA staff to “use the funds from the Dedicated Cannabis Account on clients enrolled in Medicaid and a Managed Care Organization the account statute, though, continues to reference the Basic Health Plan instead of Medicaid.”
      • Second, Trunnell explained the “formula allocate[d] funds to HCA for contracts with community health centers. HCA does not have contracts with Community Center Health…Care Centers,” and had opted to “pay for healthcare costs for children enrolled in Medicaid and seen at a center.” She felt “while this may be consistent with budget direction, it's not consistent with statute,” and said one way lawmakers might remedy the situation would be to “combine the Appropriations and/or specify that funds are intended for Medicaid.”
    • Beyond clarifying laws, Trunnell described how expenditure information had been tough to find as “there's no single location for the public to access agency summaries or other documents on how funds are spent.” No agency had been directed to provide this data, she observed, but noted WSLCB “does provide some information about account revenues and expenditures in their annual agency report,” while other agencies provided some information “about how they use funds on their websites.” Trunnell concluded that “there is useful information out there, but it's difficult to find and it's not in one place,” and advised collaboration on “providing publicly available data, making data easily accessible for the public, and stakeholder engagement.” She added that eight out of ten other states collecting and disbursing cannabis revenue “made appropriation and expenditure information available to the public through a cannabis specific website or webpage. Two other states make financial information available in a cannabis-specific report. Washington does not have a specific web page or report for cannabis tax revenue and distribution information.”
    • Staff believed WSLCB was best positioned to lead on that effort, said Trunnell: as the primary “regulatory agency, it administers accounts and it collects excise tax revenues,” and already published “information about revenues and expenditures in it's annual agency report, and it has two cannabis web pages, but those only contain information for cannabis business owners.”
    • “The legislative auditor recommends that LCB create a web page that provides information about cannabis revenues and expenditures,” Trunnell told committee members. She said they recommended housing “information already published by LCB and other agencies” on this site, which should be developed in consultation “with stakeholders to determine the appropriate level of detail for all expenditure information and preferred format for the information.”

• Chair Mark Mullet asked questions throughout the presentation, and other legislators made more inquiries afterwards.
  • Mullet noted that committee leaders had already had more in-depth conversations with staff, and highlighted that under the original initiative cannabis money going to healthcare “was outside of the traditional Medicaid Program as an additional state policy then that got rolled into” Medicaid spending. He asked staff to elaborate how “by the time the revenue started flowing in” officials were funding healthcare with cannabis dollars as “part of an entitlement, not as a separate standalone State program,” asking them to “explain that nuance to the full committee” (audio - 2m, Video - TVW).
    • “When I-502 passed at that time there was the Basic Health Plan,” which Stidham said was “a State-funded program for individuals that didn't qualify for Medicaid. Just really shortly after that Medicaid Expansion was allowed and the State did…expand its Medicaid program and so when these funds started coming into the Dedicated Cannabis Account the legislature amended the basic health plan statute to allow those funds to be spent on Medicaid.” HCA staff decided how to specifically spend DCA money, but it still was appropriated under the Basic Health Plan - Health Care Access Act, she added.
    • Mullet emphasized that “our discussion was that…54% in healthcare in a lot of ways you could consider is very similar to general fund dollars now because that's an entitlement. We don't have a choice but to pay that money…for our Medicaid responsibilities. And so it just, it seems like the general fund portion is actually the lion's share,” he argued.
  • Next, Mullet was curious how specific the language for prevention funding had been in I-502 (audio - 1m, Video - TVW).
    • Stidham said dollars for prevention, treatment, and education to DSHS, and subsequently WA HCA, had been earmarked "to receive 15% of the funds." Regarding the wording as “fairly broad,” she noted it covered work to “implement, monitor, maintain programs in these three categories, and that language largely stayed the same.” In initial budgets allotting cannabis revenue, “there were a series of budget provisos and those budget provisos have almost stayed the same every year.”
  • Mullet brought up that I-502 had said “15% for substance abuse treatment and another 10% for the education stuff…are we getting to those specific numbers and in the information you just shared?” (audio - 1m, Video - TVW)
    • Stidham replied that previous legislatures “tweaked the language a little bit and set it to an ‘up to 15%, of 10%,’ and did those for most of the percentage-based ones except for the healthcare-related ones stayed at their set percentage.” She noted lawmakers had also set a “floor” establishing a minimum that had to go to those topics, “so not less than a certain amount, and so the legislature has always funded within that range…but at the lower end of the range, so it's been around eight percent.”
  • Representative Gerry Pollet expressed gratitude for the presentation before mentioning the US Centers for Disease Control and Prevention (US CDC) “has recommended programs that are kind of considered the gold standard for cessation, prevention, and education for cannabis, vapor, and tobacco, and I'm wondering if you looked at a comparison of our state’s expenditure… to either other states spending or the CDC recommended spending level” (audio - 4m, Video - TVW).
    • Trunnell answered that they did look at their programs for tobacco, and compare Washinton to other legal cannabis states, however “there wasn't really a set standard for cannabis excise tax revenues being spent on prevention, education, and treatments.” Staff hadn’t felt that recommendations by the US CDC for tobacco “was necessarily a direct comparison with recreational marijuana use.”
    • When Pollet followed up to ask how spending for prevention and education related to tobacco compared to other states Trunnell cautioned that analysts had focused on cannabis, and found “Washington [was] low in comparison to that, but the information that we could find did not seem like it was a comprehensive amount that was being spent on tobacco cessation.” Moreover, she mentioned that WA HCA staff believed allocating funds based on substance “wasn't as helpful as having a more comprehensive program, and so with DOH and HCA now they can be spent on both, but they do…focus their efforts on cannabis for this particular revenue stream. Trunnell described a wide range of prevention funding in other states, but insisted “there was nobody that had more than Washington had directed.”
      • DOH representatives will host a webinar “discussion regarding what to do with vape waste for schools, parks, and communities,” impacting both cannabis and nicotine products, on Thursday November 30th.
  • Senator Keith Wagoner was underwhelmed by the “paltry amount” of cannabis revenue distributed to local governments. Recalling his time as a local mayor when I-502 passed, “we made some important decisions based on how much we thought we were going to benefit as local government entities by allowing it.” He asked if the sum sent to local officials was a “fixed” amount, and Trunnell mentioned “it was fixed at 20 million in fiscal year 2022 when the formula was updated. It's now a part of the second portion of the formula, so it's percentage-based,” meaning that “1.5% of the remaining funds after the dollar-based appropriations have been made go to cities, towns, and counties based on the amount of cannabis excise tax collected in the previous year, and then 3.5% of the remaining goes to cities, towns, and counties based on total population, assuming that they allow cannabis businesses” (audio - 2m, Video - TVW).
  • Senator Bob Hasegawa suggested that “considering cannabis use was one of the major weapons used against poor people and people of color in the war on drugs, and I noticed that there's a social equity component, my question is actually very similar to the previous one. Is that 0.04% for social equity in statute, or is that just how it was distributed, how it turned out to be?” (audio - 3m, Video - TVW)
    • Trunnell responded that “in statute it's actually a little bit higher, but it took a little bit for the Department of Commerce to get the program up and running so the amount spent is lower than the amount appropriated” by a “small difference. It is not the majority of spending.” She indicated this money was for a free technical assistance program and a mentorship roster for WSLCB social equity program applicants.
      • Delays by Commerce officials in setting up a grant program for applicants had already led to public consternation. WSLCB staff last discussed the situation on October 31st.
    • When Hasegawa asked for clarification on whether there were any appropriations focused on mitigating the “detrimental effects of the war on drugs,” Seto said that was the only sum coming from the DCA, but a $200 million appropriation “to the Community Reinvestment Fund from the general fund” would be used by Commerce “for communities disproportionately harmed by the negative effects of cannabis related enforcement laws.”
    • On October 31st, Commerce officials published their “Community Reinvestment Plan Report” and announced their “plan to invest $200 million to address disparities created by the war on drugs.”
  • Representative Stephanie McClintock brought up difficulties county officials in her district had in understanding local government distributions from the Washington State Department of Natural Resources (WA DNR) and wondered if similar challenges existed with cannabis revenue distributions. Stidham understood cannabis revenue worked under a “quarterly distribution” that was regularly updated on the WSLCB website, reflecting that it was “fairly transparent on how much goes to…each local government, and was “entirely different” than the process used at WA DNR (audio - 2m, Video - TVW).

• A final report was on track for presentation to lawmakers ahead of the 2024 legislative session, though any implementation of JLARC recommendations was certain to take longer.
  • Tunnell advised reviewing the webpage for the preliminary report which had interactive dashboards on the data they’d discussed and other materials. A final draft of the report was scheduled to be presented at the JLARC meeting on January 3rd, 2024.
  • Given a backlog of research and rulemaking work already before WSLCB, outreach to stakeholders and other agencies related to the JLARC recommendations would be unlikely to be undertaken early in 2024 absent binding legislative direction.