COUNTY OF SACRAMENTO CALIFORNIA

For the Agenda of: August 10, 2011 Timed: 10:30 a.m.

To: From: Subject:

Board of Supervisors Department of Community Planning and Development Consideration Of An Interim Ordinance Of The Sacramento County Zoning Code Pursuant To Government Code Section 65858 Relating To The Cultivation And Dispensing Of Medical Marijuana

Supervisorial Districts: Contact:

All Leighann Moffitt, Interim Planning Manager, 874-5584 Steve Pedretti, Director of Building and Code Enforcement, 874-1657

Overview On July 27, 2011, the Board of Supervisors initiated preparation of Ordinances to regulate and permit medical marijuana establishments. In the context of that hearing, the Board of Supervisors requested a report back on enhanced enforcement of existing, illegal marijuana establishments which is the focus of this report. In addition, this report discusses future options for taxation of medical marijuana establishments. Recommendation The Board of Supervisors receive and file this report. Measures/Evaluation Enforcement efforts will be measured by (1) the number of violations pursued and (2) the number of successful enforcement efforts. Fiscal Impact The proposed enforcement strategy of focusing on both zoning and building code administrative penalties on land owners is expected to cost $ 1,110,000, an increase of $510,000 over the $600,000 that is already appropriated in the Fiscal Year 2011-12 Approved Recommended Budget. Any necessary changes to staffing levels or funding will be made during the Fiscal Year 2011-12 Adopted Budget Hearing. Staff recommends that the increased costs be funded through a combination of administrative penalty recovery ($125,000), loan from the Problem Property Fund ($250,000), and General Fund revenue ($135,000). It is difficult to estimate cost recovery of administrative penalties which is likely to occur over several years. However, staff estimates recovery of building inspection administrative penalties in Fiscal Year 2011-12 to be approximately $125,000, with additional recovery to occur over several years through the lien process.

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BACKGROUND At the Board of Supervisors hearing of July 27, 2011, County staff recommended that the Board initiate a process for the preparation of permanent regulations to permit and regulate medical marijuana establishments via a Zoning Code Amendment and Business License Ordinance. At that hearing, the Board accepted staffs recommendation and also requested a report on enhanced enforcement against existing, illegal marijuana establishments. DISCUSSION Enhanced Enforcement Concerns and issues were expressed by community members and Board members at the hearing of July 27, 2011 regarding the proliferation of illegal and unpermitted medical marijuana establishments and the impacts of such establishments on the public health and welfare of the community as a whole. Staff estimates that approximately 56 illegal marijuana establishments are currently operating within the unincorporated County. Code enforcement has issued numerous notices of violations (NOVs) several of which have been heard by the Board of Supervisors. The illegal marijuana establishments have been ordered to cease operating based on violations of the Zoning Code. Hearings on similar NOVs are pending. County Counsel is preparing to commence judicial proceedings against approximately 11 establishments in cases referred to that Office by Code Enforcement. A total of nine cases have been referred to County Counsel for assistance with administrative penalty appeal hearings; there are four more cases nearing referral. Of the nine currently referred cases, two are pending decisions by the County Hearing Officer with the remaining seven scheduled for hearing in the next month. The length of the enforcement period is dependent in part on the extent to which due process rights are triggered by the property owner. Staff proposes continuation of its previously implemented strategy of pursuing property owners in an effort to motivate such owners to take actions against tenants who are operating illegal and unpermitted establishments. The County will also begin some intensive measures to notify property owners of the Board of Supervisors direction to more aggressively enforce the Countys existing regulations, advising the property owners that it is their responsibility to ensure that tenants comply with the Countys zoning requirements. This will require aggressive use of notices of violation; imposition of significant administrative penalties; and, conversion of penalties to liens against the property. However, the success of this strategy is dependent, in part, upon outreach to property owners and tenants. Staff will also notify both property owners and the illegal marijuana dispensaries that, regardless of the proposed Zoning Code and Business License ordinances, staff will not recommend that the Board of Supervisors grandfather any of the existing establishments. All of those establishments are considered to be illegal and should not be grandfathered by the new regulations.

Consideration Of An Interim Ordinance Of The Sacramento County Zoning Code Pursuant To Government Code Section 65858 Relating To The Cultivation And Dispensing Of Medical Marijuana Page 3 Administrative Penalties Staff has determined that, in addition to potential progressive administrative penalties of up to $500 per day for zoning code violations, staff will explore the availability and effectiveness of utilizing potential progressive administrative penalties of up to $1,000 per day for building code violations, an action not previously taken by the County. Staff recommends aggressively pursuing administrative penalties for building code violations. Building permits for a marijuana establishment may only be issued after a use permit and/or business license has been established; however, none of the marijuana establishments in the unincorporated area of the County have obtained use permits and/or valid business licenses. Most, if not all, marijuana establishments have made tenant improvements without obtaining building permits and 29 establishments have already been issued NOVs by Building Inspection. The benefit of this strategy is that, in addition to the higher penalties, building code violations may require less staff time to be established than do zoning code violations. However, there are some procedural and operational issues which need to be resolved prior to triggering the administrative penalties available for Building Code violations. Staff will be working closely with County Counsel to resolve the issues. Additionally, staff will be assigned from multiple departments to participate in more frequent checks on marijuana establishments in a coordinated manner. The Sheriffs Department, for example, proposes to have deputies visit marijuana establishments during their normal rounds. The business licensing unit from the Department of Finance may also participate in this effort. The increased effort will enable administrative penalties to be accrued sooner and more often where zoning code violations exist. These increased enforcement efforts could result in administrative penalties of up to $1,500 per day ($10,500 per week) accruing to owners of properties where marijuana establishments are located, presumably a significant incentive for owners to stop code violations on their property. Injunctive Relief Staff has begun to refer cases to County Counsel for injunctive relief against property owners. It is anticipated that complaints will be filed shortly. The time for hearings on the requested injunctive relief is dependent upon the courts calendar. It can take 2-3 months to obtain a hearing date. Staffing Needs The proposed strategy puts an emphasis on issuing administrative penalties against property owners for zoning and building code violations. Issuing administrative penalties for building code violations will require increased staffing in Building Inspection, including a portion of a manager, two building inspectors for six months and one thereafter, and one clerical position. As there is no funding in Building Inspection for this effort, General Fund revenue of $300,000 would be required to fund this effort for a nine month period. In addition, the enhanced strategy will likely result in administrative and judicial appeals; therefore an additional attorney in County Counsel above the number currently budgeted will be required. For nine months, this cost would be $210,000. Any necessary changes to staffing levels or funding will be made during the Fiscal Year 2011-12 Adopted Budget Hearing.

Consideration Of An Interim Ordinance Of The Sacramento County Zoning Code Pursuant To Government Code Section 65858 Relating To The Cultivation And Dispensing Of Medical Marijuana Page 4 Future Taxation Options The Board has asked for more information on the possibility of taxing marijuana establishments, and estimates of tax revenue that some industry representatives have shared should be addressed as well. The County has the option to propose a tax on marijuana businesses. A proposed tax could be modeled after the City of Sacramentos (City) Measure C, which was passed in November, 2010 and became effective on July 1, 2011. Measure C requires medical marijuana businesses, including not-for-profit dispensaries, to pay up to a four percent Special Business Operations Tax on gross receipts. At the time of the proposal, the City estimated potential annual revenue to be $300,000 to $500,000. Any proposed tax by the County would require the Board of Supervisors to adopt an ordinance which would be subject to voter approval. If the proposed tax were to be a general purpose tax, only a simple majority approval would be required. The next opportunity to bring a tax measure forward for voter approval is the June Primary in 2012. The effective date could be as early as the date of that election, assuming voter approval. Regarding some industry estimates of revenue that the County could realize from taxing marijuana businesses, it should be noted that these estimates appear to be based on factors that have yet to be determined. Primarily among these is that the number of marijuana establishments that will ultimately operate in full compliance with the requirements and within the proposed zoning areas is unknown. For example, it is possible that permit requirements to address concerns regarding over-concentration of marijuana establishments may be approved, which would likely reduce the number of marijuana establishments that are currently operating. Consequently, it is premature for staff to offer any revenue projections. Prior CPAC Outreach Finally, for the record are summaries of discussions at four CPAC outreach meetings not included in the prior report provided as Attachment 1. MEASURES/EVALUATION Enforcement efforts will be measured by (1) the number of violations pursued and (2) the number of successful enforcement efforts. FINANCIAL ANALYSIS Total cost of enhanced enforcement as outlined in this report is $1,110,000. The cost for four additional staff in Building Inspection and one attorney in County Counsel is $510,000. The current funding in the Fiscal Year 2011-12 Approved Recommended Budget for Code Enforcement and County Counsel staff is $600,000. Staff recommends that the enhanced enforcement costs be funded through a combination of administrative penalty recovery ($125,000), loan from the Problem Property Fund (PPF) ($250,000), and General Fund revenue ($135,000). The PPF is a revolving fund that is used for enforcement actions associated with problem properties. The funding in the PPF originated from the former Planning and Community Development Department (which at the time included the Code Enforcement Division). It is intended that administrative penalties that are collected subsequent to Fiscal Year 2011-12 will be used to repay the PPF loan to the extent that penalties continue to be collected (including through liens of properties).

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Any necessary appropriations will be included as part of the Fiscal Year 2011-12 Requested Adopted Budget.

Respectfully submitted,

APPROVED: STEVEN C. SZALAY Interim County Executive

NAVDEEP S. GILL, Chief Operations Officer Community Planning and Development

Attachments: Attachment 1 CPAC Comments (four meetings not included in the prior report)