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Dan Levy/Billy Penn

Philly admits it will earn less money from the soda tax than it planned

The city is about to lower projections — it would need about $20 million in May and June to reach its previous projection of $46 million.

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Dan Levy/Billy Penn
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Correction appended; story updated at 12:10 p.m., 7:45 p.m.

Philadelphia’s sugar-sweetened beverage tax isn’t going as well as the city planned.

With a few weeks left in the current fiscal year and Philadelphia unlikely to hit its $46M soda tax goal, Philadelphia is lowering its revenue projection for the tax.

Mike Dunn, deputy communications director for the Mayor’s Office, said over email that the Budget Office anticipates reducing the soda tax revenue projections for fiscal year 2017 when it presents a revised five-year plan later this month. The city will likely not revise any long term projections, Dunn said. It projected $91 million in revenue for fiscal year 2018 and a total of about $450 million over five years. The amount of the reduction will be released later this month.

After a strong start to tax collections, revenue declined in April, the city collecting $6.5 million. The previous month it had collected $7 million; officials expected the same amount in April.

Through four months, the tax has produced revenues of $25.6 million. To reach the projected $46 million, the city would need about $20 million in revenue for May and June and in other dues that would be collected after June but still count toward the 2017 fiscal year.

“It’s hard to make a change in fiscal year projections based on one low month, but as there are only two months remaining in the fiscal year, we chose to make an adjustment now,” Dunn said. “We don’t believe that our full fiscal year projections need to be revised. The returns on the other three months were all very much in line with what we expected.”

To deal with complications in collecting the tax and instructing dealers and distributors of sugary drinks, the revenue department has hired six new field investigators, two new customer service representatives and an outreach coordinator.

“These new projections show that reality is finally catching up with the mayor’s inflated projections,” said Anthony Campisi, spokesperson for Ax The Bev Tax. “The city has yet to achieve its full collections target and is once again changing the goalposts to obscure the fact that this tax is not a sustainable source of revenue for the city. This latest move by the administration highlights the undeniable flaws in a failed tax that is costing jobs, raising prices for working families and hurting local business.”

On an anecdotal level, many stores, particularly independent grocers, have complained about a decline in beverage sales and overall sales because of the soda tax. Coke and Pepsi have both claimed jobs have been lost because of the tax. But data recently totaled by the city illustrates a rise in wage taxes compared to last year and previous years for industries related to food service, grocers, distributors and bars and taverns, suggesting the impact may not be widespread.

In the first quarter of 2017, about $23.4 million was collected in wage tax in industries affected by the soda tax. That’s about $3 million higher than the city collected in the first quarters of 2015 and 2016.

The soda tax was launched to provide pre-K to Philadelphia children, renovate local parks and strengthen the city’s precarious financial situation. Nearly 2,000 children have attended pre-K so far and some 250 jobs have been created.

After this article was published, City Controller Alan Butkovitz sent a letter to Rob Dubow, the city’s finance director, expressing concern with “current and future projection shortfalls” with the soda tax’s revenues and comparing them to the cigarette tax revenues, which did not reach the School District’s projections. He asked for Dubow to provide the latest projections that would show how the city can meet future revenue goals.

“The city appears to be creating a short-term and long-term deficit through the Beverage Tax,” he wrote, “by not budgeting with true and accurate collection figures.”

Lauren Hitt, communications director for the Mayor’s Office, said Butkovitz had been about his intentions to partner with proponents of the tax as a way to further his political career.

“He also openly opposed the tax during his re-election campaign, while his opponent supported it,” Hitt said. “We saw how that worked out for him.”

Butkovitz’s full letter is below:

Letter from City Controller regarding soda tax projections by Anna Orso on Scribd