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March 13, 2018

City controller: Most soda tax revenue in General Fund, not spent on pre-K, community schools, parks rehab

City responds that a legal challenge to soda tax is keeping the city from spending the money on the programs

Politics Taxes
06302017_City_Hall_Soda_Illo PhillyVoice Illustration/Credits: Somrakjendee; trekandsho


The vast majority of revenue raised by Philadelphia's controversial beverage tax has yet to be spent on the three public initiatives used by Mayor Jim Kenney to promote its passage, according to data presented Tuesday morning by City Controller Rebecca Rhynhart.

Rhynhart reported that about 74 percent of the nearly $85 million generated by the beverage tax since its inception has gone into the city’s General Fund, which supports core government operations and balances the municipal budget primarily through taxpayer revenue.

In a news brief accompanied by a pair of charts, Rhynhart said releasing the data is part of a larger effort to increase transparency around how the city spends taxpayer money.

Officials with the mayor's office, however, contended the data doesn't offer context on the city's legal rationale for withholding the expenditure of soda tax funds.

Mike Dunn, a Kenney spokesman, claimed the data only covers pre-K and community schools expenditures, disregarding about $6.6 million in other costs from Fiscal Year 2017 alone, including parks and recreation spending on Rebuild.

"It is extremely disappointing that the controller chose to issue such misleading and inaccurate information," Dunn said.

The 1.5-cents-per-ounce soda tax, enacted in 2016 and implemented in January 2017, was championed by Kenney as the lynchpin of broad plan to improve Philadelphia's pre-K offerings, create a network of community schools and revitalize parks, recreation centers and libraries across the city.

The charts below, provided by the city controller's office, break down spending for fiscal years 2017 and 2018.

Source/Office of the City Controller

Philadelphia Beverage Tax revenue expenditures (FY17)

Source/Office of the City Controller

Philadelphia Beverage Tax revenue expenditures (FY18)

Throughout the contentious debate over the soda tax, opponents argued that the city's under-the-radar plan to reserve revenue for the General Fund was a bait-and-switch by the Kenney administration.

But Rhynhart's release on the data is misleading because it doesn't mention that soda tax revenue has been held up by the American Beverage Association's ongoing lawsuit against the city, said Donna Cooper, executive director of the non-profit Public Citizens for Children and Youth, an organization that helped lead the battle to pass the soda tax. She said the case is currently under review by the Pennsylvania Supreme Court.

"The controller's release seems to point a finger at the Kenney administration doing something nefarious," Cooper said. "The finger should be pointed at the soda industry. The money would be spent without the lawsuit. The city is protecting these funds. If they rolled out the money for pre-K and the tax [was repealed], they'd have to remove kids from pre-K classes."

Cooper, who worked for the city for 14 years, including a position in the Controller's Office, said she was surprised Rhynhart would have released the information in such a narrow way.

A Rhynhart spokeswoman told PhillyVoice that a full infographic released by the Controller's Office explicitly states that the soda tax revenue has been held in the General Fund for future program use, as previously reported by several outlets.

Rhynhart believes the money should be placed in a segregated reserve account pending the outcome of the lawsuit. Otherwise, as part of the General Fund, those revenues are available to be spent on other items.

"We wanted to present the data without this commentary," the spokeswoman said. "The impetus for this came from people wondering about the soda tax when [Controller Rhynhart] attended community meeting after community meeting. People want to know how money is being spent. Our goal is simply to showcase what's coming in and where it's going out."

In reference to the $6.6 million in omitted costs associated with Rebuild, the spokeswoman said that any money spent for that purpose in FY17 was not coded in the city's ledger as soda tax revenue earmarked for Rebuild. The data represented in the charts reflects all of the soda tax revenue that was coded for associated city programs. 

Former City Controller Alan Butkovitz warned last year that shortfalls in projected soda tax revenue were "creating a multi-million dollar burden" for Philadelphia. City officials responded then that the shortfalls were inherent to the seasonality of the tax.

Rhynhart's report comes after the Kenney administration revealed earlier this month it would scale back its goals for "universal" pre-K, reducing the number of seats from 6,500 to 5,500 over the next five years. Projections for community schools, which combine educational and community health resources under one roof, fell from 25 to 20 over the same period.

The $500 million Rebuild initiative was also expected to see reductions in city borrowing, though the program has received outside grants and investment to help with repairs at selected sites.

A survey of Philadelphia businesses conducted last year by Butkovitz showed that a large number of restaurants, grocery stores and corner stores had sustained revenue losses since the passage of the soda tax. The Kenney administration questioned the methodology and impartiality of the survey, claiming Butkovitz was motivated by political aspirations.

Data from the survey seemed to conflict with the findings of a West Coast study on the impact of Berkeley, California's penny-per-ounce soda tax. Another three-year study by the University of Pennsylvania and Harvard University will assess the specific impact of the Philadelphia beverage tax on beverage sales, customers’ purchases and consumption habits.

Dunn said the mayor has every intention to spend the soda tax revenue as originally intended when the lawsuit has been resolved. 

"All of the money that is in reserve is going to be spent on the programs," Dunn said. "This was made clear when the mayor proposed the tax two years ago, it was made clear during last year’s budget process, and it was made clear on March 1 of this year, when we announced to reporters the revised projections for the beverage tax."