Updated 10:25 a.m.
The city is delaying borrowing $300 million to support a massive rebuild of the city’s parks, libraries and community centers as a lawsuit over the new sugar-sweetened beverage tax snakes through the courts system.
Mike Dunn, a spokesman for Mayor Jim Kenney’s administration, told Billy Penn Tuesday that in addition to delaying the borrowing of that $300 million, the city will not add an additional 1,000 pre-K seats in September, as previously planned, if the tax is still under appeal at that time.
The city insists that the slowing of projects the sugary beverage tax was supposed to fund isn’t because revenue projections for the first month of the tax are coming in below what an average month is expected to generate. Dunn said the city expects to collect less in the first month of the tax as opposed to later on in the year as “dealers of sweetened beverages indicated that they would be stocking up in advance of the tax.”
While final figures won’t be available until March, the beverage tax would need to bring in an average of $7.6 million a month to meet projections, though a quarterly city manager’s report did estimate that a (significantly less) $2.3 million would be generated in January 2017. Dunn said the city still expects to make the predicted $46 million by June 30.
The sugar-sweetened beverage tax, the first of its kind in a major American city, was passed last year and went into effect Jan. 1. It’s expected to bring in $91 million a year that the administration has said would fund city-subsidized pre-K, community schools and the “Rebuild,” an initiative to update the city’s parks, libraries and recreation centers. The tax was expected to partially repay the $300 million proposed bond.
Dunn said variations in monthly tax payments to the city were budgeted for, but the city is scaling back its plans “solely because of” a lawsuit filed by the American Beverage Association and local retailers and distributors. That lawsuit — which challenges the law on constitutional grounds — was dealt a blow in December when Philadelphia Court of Commons Pleas Judge Gary S. Glazer dismissed it.
Shanin Specter, an attorney representing the ABA, in an email said the tax’s “illegal end run” around the state constitution and federal law “is producing catastrophic results.”
“The city hasn’t even gotten pre-K off the ground as promised, as there are hundreds of empty seats,” Specter said. “The city could use other revenue sources for its project and bonding ambitions but instead offers fake news and bitter invective as excuses for the consequences of its illegal tax.”
Because the city is delaying its borrowing of $300 million to support the Rebuild initiative, that also means it will not receive a $95 million matching grant from the William Penn Foundation until the appeal is resolved.
Despite that, Dunn said the Rebuild program will move forward with design and construction phases on a small number of sites with $5 million it has from the William Penn Foundation and the city’s current capital budget. The administration still plans to ask City Council for approval to borrow the $300 million this spring so that if the litigation is settled while Council is in summer recess, the city can still get the borrowing process started.
In addition, pre-K will maintain its current commitment to 2,000 seats but an additional 1,000 will not be added in September if the tax is still under appeal at that time. When it comes to community schools, the city will at least continue with the nine it’s currently operating.
The administration won’t say if it plans to borrow the money to fund the Rebuild initiative if the beverage tax is overturned, saying only that it’s confident the courts will rule in their favor.
Administration officials have acknowledged from the get-go that they expected a legal challenge to the sugar-sweetened beverage tax. Despite that, the city budgeted spending millions of dollars on the pre-K initiative alone in Year One of the beverage tax.
Billy Penn reporter Mark Dent contributed reporting.