Philadelphia is now the first major city in America to have a tax on sugary beverages. But don’t expect to run to the store later today and find jacked up prices on your Mountain Dew.
City Council passed the measure Thursday on a 13-4 vote. District Council members Maria Quinones-Sanchez, D-7th, and Brian O’Neill, R-10th, voted against the tax, as did at-large Republican Council members Al Taubenberger and David Oh.
The 1.5-cent-per-ounce tax on sugary beverages and diet sodas doesn’t go into effect until Jan. 1, 2017, which seems like a long time from now — if there weren’t such serious opposition to this measure. But the time between now and then gives the Kenney Administration ample time to fight off a legal challenge that’s sure to come from beverage companies and those against the soda tax.
Assuming the administration wins those legal challenges (which isn’t certain at this point), *then* the soda tax would go into effect and start impacting your wallet. Revenue from the tax will begin to be collected and will start funding programs in 2017, including the addition of several thousand pre-K seats across the city.
Here’s a look at what comes next now that Council’s passed the bill and, of course, Mayor Jim Kenney is sure to sign it into law:
The legal challenges
Kenney’s administration has been prepping for a lawsuit against an enacted soda tax since he brought it up in his budget proposal. And it seems like almost a guarantee at this point.
Daniel Grace, secretary of Teamsters Local 830 and a vehement opponent of the sugary drinks tax, released a statement after the Committee of the Whole gave the tax a preliminary green light last week saying: “The Sugary Drinks Tax is a sham and I doubt it will survive the legal challenge that’s likely to come.”
The only other place in America to enact a soda tax was Berkeley, Calif. where city officials expected a legal challenge from the beverage industry that never came. But make no mistake: Philadelphia’s a much larger city than Berkeley, and the beverage industry will want to fight against the precedent it’s setting.
In fact, when former New York City Mayor Michael Bloomberg attempted to introduce a ban on soda containers larger than 16 ounces, the soda industry sued and Bloomberg was defeated in the courts due to “loopholes” in his new regulation.
Here in Philly, opponents could bring a lawsuit challenging whether or not Philadelphia has the authority to impose a sugary drinks (and diet sodas) tax without violating the Pennsylvania Uniformity Clause that stipulates a tax must be levied “upon the same class of subjects.”
City Solicitor Sozi Tulante told Billy Penn earlier this year a legal challenge wouldn’t be unexpected, though the administration believes it’ll win in court because state law doesn’t conflict.
“There has never been a controversial law,” said Richard Feder, chief deputy city solicitor, “where somebody doesn’t say, ‘That’s illegal we’re going to sue.’”
Between court appearances and appeals, a lawsuit on the soda tax could snake through the courts system for months.
The impact on your wallet next year
So if the Kenney administration is able to win a legal challenge, the 1.5-cent-per-ounce tax will begin being levied on distributors — not individual customers — beginning on Jan. 1. It’s hard to know for sure what the price increases will be on sugary drinks across the city because we don’t know how much of the tax distributors will push onto consumers. (In Berkeley, they passed on about half.)
The worst case scenario for consumers is that distributors would pass along the entire tax. So what’s that translate to?
A 12 oz. can of soda that may typically sell for 99 cents will now be $1.17, as 18 cents would be added to cover the new per-ounce tax. To put that in perspective, if you drink one can of soda per day, your costs will increase by about $65 over the course of a year. Meanwhile, a 20 oz. bottle of soda would have 30 cents added, and go from about $1.15 to $1.45.
The starkest difference is when it comes to two-liter bottles of soda and 12-packs of cans. A two-liter would go from about $1.29 (the current cost at Acme for a bottle of Coke) to $2.31. That means if you buy one two-liter per day, your costs will increase from $470.85 a year to $843.15, a difference of about $370 over the course of a year.
Similarly, four 12-packs of cans is currently on sale at Acme for $12. That price would increase to $20.64 if distributors pass along the entire 1.5-cent-per-ounce tax to consumers. That’s an increase of about of $2.16 per 12-pack.
Where the money will go
If the administration beats a legal challenge and tax goes into effect, the next step is to start collecting it. The tax is expected to bring in about $90 million annually over the next five years, with about 20 percent of that going toward things the administration didn’t previously publicize until last week when Council was voting on the measure.
Some $41 million over five years is expected to go toward padding the city’s fund balance. In a story earlier this week, The Inquirer broke down where other soda tax funds will be spent:
- $6.7 million for employee benefits, primarily for disability settlements.
- $4.4 million for programs within Health and Human Services, including the Philadelphia Nursing Home, youth homelessness, and feeding the homeless.
- $1.6 million to cover the costs of resentencings for about 300 juveniles who were sentenced to life without parole, a penalty ruled unconstitutional by the U.S. Supreme Court.
- $1 million to Community College of Philadelphia.
The rest of the money raised by the tax will go toward funding the mayor’s initiatives, including expanding opportunities for pre-K, establishing 25 “community schools” across the city and paying interest on bonds taken out to rebuild the city’s parks and recreation infrastructure.
The public could start seeing changes in how the education system works by as early as January. The exact timeline for expanding pre-K options in Philadelphia is still a bit muddy, but Pre-K director Anne Gemmell said in March that the city is looking at a “mixed delivery system,” meaning new money from the city meant to fund several thousand new seats seats would go directly to private providers in order to hire new staff, improve facilities or otherwise expand their operation.
There are currently about 14,000 quality pre-K seats in the city, and about 9,000 of those are operated by the School District of Philadelphia. The city hopes to fund an additional 6,500 seats in the next five years. In about a year, the administration hopes to roll out an online marketplace of sorts where parents can shop for pre-K options.
Kenney has said his administration will also begin work on funding “community schools” once it starts collecting the tax. That means the administration will pick 25 schools from across the city and, over five years, transform them into community hubs that offer health services, tutoring and adult literacy courses.
In his proposed budget, he recommended spending $4 million on the community schools plan in fiscal year 2017 and $10 million after. In total, it would be about a $39.5 million investment from the city, or about $1.6 million per school. The administration will also seek state and federal grants, as well as funds from businesses and nonprofits.
