Reconsidering the Community Impact Fee
Following the downfall of former Fall River Mayor, Jasiel Corriea, in November 2019, US Attorney, Andrew Lelling began investigating corruption afoot in other Massachusetts municipalities. Attorney Lelling’s office served twenty Massachusetts cities and towns with subpoenas regarding their host community agreements (HCAs), particularly the community impact fee authorized by M.G.L c. 94G, § 3(d). Although the community impact fee was designed to offset costs host communities incurred as a result of marijuana business operations within its limits, the fee has fallen under increasing scrutiny, with some retailers filing lawsuits against their host communities, alleging that they have been charged excessively high and illegal fees. Therefore, it is imperative that, going forward, municipalities carefully consider what costs are charged under the community impact fee, and whether they should assess the fee at all.
Contributing to the troublesome nature of the community impact fee is the broad contracting authority the statute grants to municipalities and the ambiguity surrounding what actually constitutes a community impact that justifies the fee. M.G.L c. 94G, § 3(d) allows municipalities that permit marijuana establishments to operate within their borders, to take a broad view of how they may justify the community impact fee. The statute states that the marijuana establishment seeking to operate in a municipality that allows such operations must execute an agreement with the host community setting forth conditions to have a marijuana establishment located in the municipality. Along with other agreements between the host community and the marijuana establishment, the host community may include a community impact fee that is
reasonably related to the costs imposed on the municipality by the operation of the marijuana establishment;
does not exceed 3% of the gross sales of the establishment;
shall not be effective for more than 5 years; and
any cost to a city imposed by the operation of a marijuana establishment shall be documented and considered a public record.
Although the Cannabis Control Commission (CCC) provides some additional guidance regarding what costs might be “reasonably related” to the operations of the marijuana establishment, municipalities have been able to take a broad view of what constitutes a community impact, with many HCAs also including additional contributions to charitable organizations. Despite the statute requiring documentation of costs imposed on host communities by marijuana establishments, some HCAs expressly provide that such costs may be impracticable to ascertain and assess. Many municipalities also provide that it may expend the community impact fee at its absolute discretion. This practice of requiring excessive fees with little transparency as to how the money is being spent has been criticized by the Cannabis Business Association, in a study conducted by Jeffery Moyer of the UMASS McCormack School. The study found that a significant number of agreements required payments beyond the legal limit, “whether through reimbursement, local charity donation, or donations to education efforts.” More troubling was that the study found that the few municipalities had any plans as to how the money would be spent and the plans that did exist, did not align with the “reasonably related” requirement.
2. Retail Marijuana Establishments Fight Back
Retailers are now fighting back. In November 2021, Happy Valley, a marijuana retailer, sued its host community, Gloucester, in Salem Superior Court, seeking a refund of almost $500,000 it paid to the city under its HCA. The complaint alleges that Happy Valley was forced into an HCA that charged excessively high and illegal fees in order to avoid losing the significant investment and development costs it had already incurred at its Gloucester site. The complaint also alleges that the lack of any reasonable relationship between the community impact fee and the actual costs incurred by Gloucester rendered the fee an illegal tax.
Although the Cannabis Business Association study makes clear that it is incumbent on the Commonwealth to clarify and enforce the law governing host community agreements, municipalities do not have to wait for the state to act. Exploiting the community impact fee is creating a greater risk of litigation and investigation, therefore, it would be wise for municipalities to reconsider their approach to HCA negotiations and community impact fees.
Despite the lack of clarity from the Commonwealth, Northampton has eliminated the community impact fee. Mayor Narkewicz explained that when marijuana regulations were first implemented, it was impossible to know what the impact such businesses have on the community would be. “But now,” Narkewicz explained, “given more experience, we understand that in most respects, these businesses operate like any other business.” Narkewicz believes that the community access fee places an unnecessary impediment to marijuana business, but especially to equity applicants. Narkewicz’s belief is echoed by the chairman of the Massachusetts Cannabis Control Commission, Steve Hoffman. Hoffman argues that it is true that when the first cannabis shops opened in November 2018 no one knew if there would be increases in crime or in underage drug use, but now, three years in, it's clear that those issues did not arise. Hoffman points out that Northampton’s nixing of the community impact fee is reflective of this trend.
Going forward, other cities would be wise to follow Northampton’s lead, or at the very least, carefully consider what expenses they incur as a result of a marijuana establishment’s operations. Given the studies previously mentioned and the pending litigation surrounding the community impact fee, communities that continue exploiting the community impact fee without being able to justify it will likely face costly and embarrassing investigations in the future. Communities that continue to include the fee in their HCAs should be up front with businesses about the anticipated costs. Furthermore, in the interest of fair dealing, municipalities should assess the costs incurred as a result of operation of a marijuana establishment on a regular basis to ensure that those costs are reasonably related to the marijuana business and adjust the fee accordingly. Communities will not be able to claim that they are unsure what costs will be incurred to the municipality when a marijuana establishment opens for too much longer. As Mayor Narkewicz pointed out, that worked when these establishments were first opening, but years later, the actual costs of operations have become clearer. It is imperative that communities document the costs incurred and are able to justify what they charge under the community impact fee.
For More Information See Consulted Sources