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Long Beach’s Ban On Medical Marijuana Slows Collections Of Business License Revenue

by Joshua H. Silavent, Staff Writer

March 12, 2013 – Long Beach’s crackdown on medical marijuana dispensaries is partly to blame for a lapse in collection efforts of business licensing revenue, leading to a multi-million dollar outstanding balance to date, according to a city auditor’s report released February 27.

Additionally, the report cites outdated software tracking systems, lack of proper documentation and inconsistency in collection efforts as responsible for between $2.4 and $2.6 million in uncollected business licensing fees. “It does not appear adequate oversight is in place,” the auditor’s report states. “The lack of sufficient policies has resulted in inconsistent collection efforts and contributed to the $1.5 million in outstanding receivables over 300 days old.”

Finance and city management, in a memo responding to the audit, said only $655,000 in outstanding revenue collection is the responsibility of the business relations bureau, with the remaining total having been forwarded to the billing and collections section or a collections agency. This was the first of several objections made regarding the audit’s findings.

In a response, the auditor’s report states that “it doesn’t matter” what agency oversees outstanding accounts. “We never said that number wasn’t right,” Finance Director John Gross told the Business Journal. “We just don’t think it quite means what the reader might interpret it as.” The city does collect about $12 million annually in licensing revenue, Gross added.

Management also disputes the audit’s finding that, on average, past due accounts were 13 months old, citing a larger sample that indicated a more accurate figure was 6 months. Gross said that in a city the size of Long Beach, with as many businesses that operate here, it is impossible to be expected to zero out the collections balance every year. “We’re going to have large receivables,” he said matter of factly.

Scheduled replacement of software systems, the hiring of a new license inspector and a decrease in enforcement efforts of the ban on medical marijuana – which includes both closing dispensaries and revoking business licenses for property owners who lease space to them – will reduce the outstanding balance in the coming months, Gross said.

“A top priority, and one that has had substantial impact, has been addressing the enforcement of medical marijuana operation regulations and the associated serious public safety issues surrounding many of those operations,” management states in a response to the audit. “These efforts are time-consuming, and draw resources that would otherwise have been used for other services, including revenue collection. Because less time is now being required on medical marijuana enforcement efforts . . . management anticipates that more time can be spent on identifying unlicensed businesses.”

The extent to which medical marijuana dispensaries have consumed management resources and contributed to outstanding collections is unclear. Though the business relations bureau was first charged with regulating dispensaries, then later with shutting them down when a ban was enacted, the audit’s review period only stretched through April 2012. Meanwhile, the business relations bureau’s efforts to enforce the ban and close dispensaries, and the subsequent targeting of landlords with administrative citations and liens, largely began after the audit review period ended. It, therefore, appears this ban and enforcement also has restricted the business relations bureau’s ability to collect licensing fees in the months since the audit concluded. “I think that this audit does highlight the costs of redirecting those city resources,” City Auditor Laura Doud told the Business Journal.

Management’s response to the audit’s findings and recommendations “needlessly defends flawed collection practices and procedures,” the auditor’s report states. “It was obvious there was no management review, there was no oversight, there was no monitoring, there was no tracking,” Doud said. “They had no documentation to refute any of the audit findings. Everything they disagreed with, they were unable to provide any documentation to support their position. Yet, I have audit files full of evidence that support our position.”

“Yes, there are improvements that can be made,” Gross said, adding that management and the business relations bureau is currently addressing all of the auditor’s recommendations. “I think the message I have is that this is one heckuva well-run division.”

“We need to have greater concentration on our collection efforts,” Doud said, “because the longer we wait to collect our fees, the less likely we are to collect them.”