Fees from medical-only cannabis dispensaries are largely the reason city revenue is expected to grow by 4 percent in the next fiscal year, though officials say it won’t be enough in the future to meet increasing costs.

City Administrator Tim Miller unveiled the 2019-20 operating budget to the Sonora City Council at a meeting on Monday that projected nearly $5.8 million in revenue for the General Fund, up from close to $5.3 million in the fiscal year that ends on June 30.

The council approved a pilot program in January 2018 to allow certain types of cannabis businesses to operate under a development agreement with the city, including manufacturing facilities, testing laboratories and dispensaries that can only sell pot for medicinal use to people with a valid doctor’s recommendation.

One dispensary, Hazy Bulldog Farms at 1243 Mono Way, opened in January. Miller said another is anticipated to complete the process and begin operating in the coming fiscal year.

Miller said he isn’t aware of any issues with the existing dispensary since it opened.

Part of the development agreement with Hazy Bulldog Farms requires the owner to pay the city $10,000 a month as a fee to operate, or 5 percent of gross sales, whichever is greater. The city is unable to charge sales tax on purchases because it’s medical only.

Miller said he anticipates revisiting the program in the coming year with the council about opening up the rules to allow sales to adults 21 or over for recreational use, which is now legal in California but currently prohibited in both the city and Tuolumne County.

The council discussed the possibility of revisiting the rules on cannabis sales for recreational use when the new regulations from California Bureau of Cannabis Control began allowing unrestricted sales via state-licensed delivery services anywhere in the state, even places where it’s currently banned.

“The council has discussed that they may consider allowing adult use, in addition to medical use, to be fair to the local businesses,” he said.

City voters approved a ballot measure in the 2018 election that would allow the council to impose a sales tax of up to 15 percent on cannabis sales for adult use, should it ever be allowed.

Despite the anticipated slight boost in revenues from cannabis fees, Miller said described the budget for next year as “status quo,” which it has been for many years. That means no expansion of programs and services, staffing increases, or new capital projects other than those that would be funded by grants or were previously budgeted in the current year but not completed.

Miller said the economy has been vibrant for several years, as General Fund revenues have continued to increase, but there are signs that it’s slowing down as those start to flatten out, which was why he recommended another status quo budget this year out of caution.

“Revenues are improving, but only slightly, and our expenses are continuing to increase,” he said, citing costs for employee health insurance and retirement contributions as the biggest factors.

The council is expected to consider passing the budget for the next fiscal year at its next meeting on June 17.

Contact Alex MacLean at amaclean@uniondemocrat.com or (209) 588-4530.