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April 14, 2018

Pennsylvania lawmaker introduces bill to invalidate Philly soda tax

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


A Republican Pennsylvania lawmaker introduced a bill this week that would render Philadelphia's controversial soda tax invalid.

State Rep. Mark Mustio (R-Allegheny) proposed the soda-tax preemption legislation in an effort to ban local jurisdictions from imposing taxes on food, beverages or containers for either. Only beer, wine and spirits would be exempt from the proposal.

"Singling out one economic sector with an unfair tax that is twenty-four times higher than the tax on beer is, at best, nonsensical," Mustio said in a memo accompanying the bill. "It is critical that we help the city maintain access to fresh foods and groceries, while also protecting the thousands of jobs in the industry."

The proposal comes as a lawsuit filed by the American Beverage Association remains under review by the Pennsylvania Supreme Court. The case was appealed to the high court last June after the State Commonwealth Court upheld the 1.5-cents-per-ounce tax on sugar-sweetened beverages within city limits.

Mike Dunn, a spokesman for Mayor Jim Kenney, swiftly defended the tax and said Mustio's bill is a broader threat to localities across Pennsylvania.

"While we are still reviewing the measure, it is clear that the bill’s sponsors are attacking the rights of local communities to solve their own problems," Dunn said. "They are also catering to the whims of the multi-billion dollar beverage industry, which has spent millions fighting the tax in court and with a relentless PR campaign."

Philadelphia's soda tax, a landmark for large American cities, was enacted in January 2017 with a goal to fund universal pre-kindergarten, community schools and the revitalization of parks, recreation centers and libraries across the city.

Opponents of the tax argue that it threatens local jobs, hampers sales for small grocers and disproportionately affects lower-income residents.

Revenue collections from the tax, about $80 million in the first year, fell short of the Kenney administration's initial $90 million annual projection. 

The shortfalls, said former City Controller Alan Butkovitz, could create a "multimillion-dollar burden" on Philadelphia. 

City Controller Rebecca Rhynhart, who replaced Butkovitz at the start of the new year, published data last month on expenditures of the soda tax revenue to date in Fiscal Year 2018. The vast majority of collections, her office found, have been pooled into the city's General Fund instead of supporting the tax's stated initiatives.

Rhynhart believes the soda tax revenue should be placed in a segregated reserve account rather than the General Fund. Critics of the tax raised similar concerns during public debate over the bill two years ago, claiming that a revenue flow into the fund balance was a bait-and-switch by the administration and City Council.

The mayor's office maintains that the soda tax revenue is only being withheld pending a decision from the Supreme Court.

"[The soda tax] has already allowed us to send 2,000 children to pre-k each year, created 250 living wage jobs in early education, and supported 11 community schools that have connected residents with seven thousand pounds of food, 1,180 items of clothing and 120 summer job and career exposure experiences for students," Dunn said in a statement.

Debate over the future of the soda tax comes as cities across the country weigh the pros and cons of such legislation.

While the legislature is focused on the Commonwealth’s financial challenges, we are trying to provide the best and most important services to our residents. All we ask is that the sponsors of this measure allow us to do so." - Mike Dunn, spokesman for Mayor Jim Kenney.

A similar soda tax covering Cook County in Illinois, including Chicago, was repealed late last year. Seattle's new soda tax, higher than Philadelphia's at 1.75-cents-per-ounce, took effect at the start of 2018. 

In Berkley, the nation's first city to pass a soda tax, a large study found minimal impact on the financial health of chain grocers on either side of the tax's geographic reach. Restaurants and corner stores were not included in the study. 

A local survey of Philadelphia business owners found that the effects of the tax may be more severe. 

One thing has become abundantly clear: Philadelphians are consuming significantly less soda than they were prior to the passage of the soda tax. 

An independent study by Drexel University, released this past week, found that city residents were 40 percent less likely to drink sugary soda every day compared to residents of nearby cities including Trenton, Camden and Wilmington.

A larger study on the impact of Philadelphia's soda tax, led by the University of Pennsylvania and Harvard University, remains in progress.

Dunn urged the state legislature to consider the consequences of Mustio's bill.

"With the tremendous deficit the School District is facing, and the state’s own fiscal challenges, there is no other way to fund these programs," Dunn said. "While the legislature is focused on the Commonwealth’s financial challenges, we are trying to provide the best and most important services to our residents. All we ask is that the sponsors of this measure allow us to do so."