October 17, 2017
More than half of the Philadelphia businesses that responded to a survey on the effects of the city's sugar-sweetened beverage tax say they've lost revenue as a direct result of the new tax.
The survey, organized by the office of Philadelphia Controller Alan Butkovitz, was completed by roughly 750 businesses scattered throughout the city, a response rate of 45 percent. Among the restaurants, grocery stores and corner stores that completed the survey over a four-week period, more than 60 percent said they had incurred a noticeable loss of revenue.
A total of 650 businesses reported a decline in year-to-year revenue, including 400 establishments that attributed "most" or "all" of their losses to the 1.5-cents-per-ounce tax. Most of these businesses said the revenue loss was greater than 10 percent and that they had to modify their product lines to adjust to the consumer response.
• 88 percent of businesses reported year-to-year revenue losses, with 57 percent reporting losses in excess of 10 percent.
• 62 percent of businesses attributed “most” or “all” of the decline in revenue to the implementation of the beverage tax.
• 40 percent of businesses surveyed indicated they would have to make “significant changes to keep the doors open.”
About 12 percent of the businesses surveyed reported a "business as usual" response to the tax.
“The overwhelming majority of businesses that carry products subject to the Philadelphia Beverage Tax feel a significant impact as a result of the tax,” Butkovitz said. “The tax has had detrimental effects.”
Of the 50 commercial corridors included in the survey, West Philadelphia, along the Market Street and 52nd Street corridors; Hunting Park in North Philadelphia; and areas around Juniata and Frankford reported the greatest losses.
“The tax seems to be impacting behavior and orientation toward the future,” Butkovitz said. “Many business owners seem apprehensive about the viability of their enterprises in the near and medium term."
At the time the survey was announced last month, officials within the mayor's office expressed skepticism about whether Butkovitz would conduct a scientific and objective survey. In the spring, Butkovitz fell to challenger Rebecca Rhynhart in a primary campaign that singled out the soda tax as an unnecessary burden on small businesses in Philadelphia.
The Kenney administration has consistently justified the tax as a sustainable revenue stream for vital city initiatives, including universal pre-K, community schools and the renovation of parks and libraries, though some balked at its reservation for Philadelphia's general fund.
For months, Butkovitz has questioned the tax's revenue shortfalls against the city's initial projections, warning of a "multimillion-dollar burden" if the numbers continue to disappoint. Finance Director Rob Dubow, responding to the controller's scrutiny in June, cited insufficient first-year data and seasonality as reasons for lower-than-expected collections.
City officials have generally cautioned against jumping to conclusions about the long-term impact of the new tax, standing firm in the face of opponents bolstered by Chicago's repeal of a cheaper penny-per-ounce tax. The mayor's office posted supportive testimony from local leaders and touted early accomplishments enabled by the tax.
"The beverage tax has raised $52 million in just eight months," Kenney spokeswoman Lauren Hitt said. "It has already allowed us to send 2,000 kids to pre-K, create 250 living wage jobs in early education and support 11 community schools that have connected residents with 7,000 pounds of food, 1,180 items of clothing and 120 summer job and career experiences for students."
Findings from Butkovitz's survey run counter to evidence gleaned from a West Coast study on the effects of Berkeley's soda tax relative to chain grocery revenues in surrounding areas. Overall beverage sales had increased at Berkeley's chain grocers despite a decline in sales of drinks taxed at a penny-per-ounce.
But that study, released in April by the University of North Carolina and the Oakland-based Public Health Institute, did not include restaurants and corner stores in its analysis.
The University of Pennsylvania and Harvard University are also nearly one year into a three-year study that will assess the impact of the Philadelphia Beverage Tax on beverage sales, customers’ purchases and consumption habits.
A legal challenge to the Philadelphia Beverage Tax, led by the American Beverage Association and other organizations, fell short before a panel of Commonwealth Court judges but was appealed to the state Supreme Court in July.
Butkovitz claims Philadelphia could have securely funded the Kenney administration's initiatives by maintaining the current level of the wage tax, which is scheduled to taper down over the next several years.
“This was an unnecessary bait and switch with taxes in order to pay for new programs,” Butkovitz said. “The minimal reduction in one tax took away revenues that could have paid to fill pre-K seats, along with money to fund other projects."
A detailed report on the findings of the controller's survey can be found here.