By Michael Cooper / New York Times News Service

Published: February 12. 2012 4:00AM PST

OAKLAND, Calif. — As the stubborn economic downturn has forced this city to take painful steps to balance its budget in recent years, it has increasingly turned to one of its newer industries to raise much-needed revenues: medical marijuana dispensaries.

The city has raised taxes on marijuana dispensaries several times in the last few years, and last year it collected $1.4 million in taxes from them — nearly 3 percent of all the business taxes it collected. Now Oakland plans to double the number of dispensaries it licenses, to eight from the current four, in the hopes that it can collect even more revenue.

“This is general fund revenue — it all goes into the melting pot,” said David McPherson, the city's tax and revenue administrator. “When you're making decisions about what to continue keeping or not, it goes into that decision process. If you don't have that money, then you're making other decisions about ‘Are we going to close the libraries on Monday?' ‘Are you going to end up cutting a cop?' ‘Are you not giving funds to our arts and things that help our kids?' ”

Sometimes lost in the discussion of medical marijuana is the extent to which it has become a small but growing source of new tax collections for cities and states that have been struggling to balance their budgets for more than four years now.

Oregon closed a budget gap last year in part by raising the annual fees it charges people with doctors' notes to join the state's medical marijuana program. In October, the state doubled the fee to $200 a year — with reduced fees available to people on food stamps — to raise an estimated $6.7 million a year to pay for other health programs.

Colorado Springs collected more than $700,000 in taxes from the medical marijuana industry in 2011. It is not a lot of money for a big city. But given the harsh steps the city has taken in recent years — in 2010 it shut off a third of its streetlights to save $1.2 million — every bit helps.

Denver collected more than $3.4 million last year from sales tax and application and license fees, according to preliminary figures. The state of Colorado collected $5 million in sales tax from medical marijuana businesses last year, more than twice what it collected the year before.

Taxing marijuana is a relatively new field, and cities and states are taking different approaches to raising revenues.

Maine decided that medical marijuana should be subjected to the state's 5 percent sales tax — unless the marijuana is baked into brownies. In that case, it is taxed at a higher 7 percent rate that the state levies on prepared foods.

Of course, some of the money raised must be used to administer the medical marijuana programs and, in some cases, to increase regulation of the industry.

Budget planners always deal in uncertainties like whether tax revenues will rebound or how much it will really cost to provide services. But projecting medical marijuana revenues adds other layers of complications, including whether the federal government will shut down the dispensaries that state and local governments have decided to allow.

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