Philly’s soda tax

Philly soda tax year one: The finances, fights and its future

Collections were lower than expected but still enough to start the pre-K and Rebuild programs.

Norris Grocery in Fishtown displays a sign that says all drinks are now taxed.

Norris Grocery in Fishtown displays a sign that says all drinks are now taxed.

Shannon Wink
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Last week, state representative Mark Mustio, R-44, circulated a memo seeking co-sponsors to join him in abolishing Philadelphia’s soda tax. His plan matched the October memo of Sen. Mario Scavello, R-40, word for word, espousing a need to “help the city maintain access to fresh foods and groceries, while also protecting thousands of jobs in the industry.”

That makes two challenges from Harrisburg, plus a third, unofficially from Republican gubernatorial candidate Sen. Scott Wagner over the summer (his was drowned out by vuvuzelas). And after nearly a full year of the beverage tax, other numbers filling the scorecard for the Philly’s hyped soda tax would also include 2,000 pre-K seats, dozens of layoffs and unfilled vacancies for local distribution-related jobs, $66 million in revenue and more than $5 million spent on ads by pro and anti-tax forces.

These figures tell of an imperfect result — and a continuing fight. Despite the tax becoming more and more a permanent fixture for Philadelphia as the months tick on, opponents like Ax the Bev Tax remain confident it can still be repealed and will keep publicly opposing it.

This where the soda tax stands after a year and where it’s going.

Are enough people drinking soda?

Mayor Jim Kenney and City Council passed the soda tax with revenue for schools foremost in mind, not public health. They need people to continue drinking sugary beverages. If too many people avoid the 1.5 cent per ounce levy by opting for alternative drinks or fleeing to the suburbs, the city won’t get enough revenue. The Mayor’s staff believed consumption would drop off no more than 27 percent because of the tax.

Revenue totals, through November, show consumption down more than anticipated. The tax brought in $66.2 million from February through November, according to the Mayor’s Office. Health Department data show typical pre-tax consumption of sugary drinks in Philadelphia was about 640 million ounces a month. Over 10 months that would be 6.4 billion. These revenue totals suggest consumption of 4.41 billion ounces of sugary drinks — a 31 percent reduction.

After drawing revenue at or above projections the first three months — and sending gushing releases about the haul — the city saw its totals decline starting in May. That month, revenue was $6.5 million, down from $7 million in April. The city’s total take for FY 2017 was $39 million, $7 million under its original projection of $46 million.

MonthRevenue
February$5,931,239
March$6,180,869
April$7,042,953
May$6,521,859
June$6,872,198
July$6,920,394
August$6,504,472
September$6,733,241
October$7,400,000
November$6,100,000

The goal for FY 2018, spanning from July 1, 2017 to June 30, 2018, is $92.4 million. Deputy Communications Director Mike Dunn said the city has not produced a month-by-month projection adjusting for seasonal fluctuations, but revenue from the first few months of FY 2018 has not put the city on pace to reach $92.4 million by the end of the fiscal year. It would need an average of $7.7 million a month for that goal. October has been the only month it’s come close, when revenues totaled $7.4 million.

“The beverage industry is attempting to portray that collection rate as a failure, but economists have reported that’s well within the normal range,” Dunn said. “Additionally, $66 million dollars still represents a significant sum in a city where more than a quarter of residents live below the poverty line. And, most importantly, it’s still going to allow us to support three programs — pre-K, Community Schools and Rebuild for parks, rec centers and libraries – that we wouldn’t have otherwise been able to fund.”

Job losses reported as wage tax rises

Throughout the year, store owners reported significant problems on an anecdotal level. Independent grocers discussed revenue losses of 10 to 15 percent. Corner store owners said the summer sales bump from sugary drinks they’d come to expect never occurred and worried about closures in the future. 

John Stanton, professor of food marketing at St. Joseph’s University and a former marketing executive in the food industry, doesn’t expect habits to change as the tax becomes further ingrained.

“If people get in the habit of just driving across the city borders, I think they’ll continue to do so,” he said. “Obviously not 100 percent of them, but some portion. And I believe there will be a permanent loss.”

Pepsi claimed losses from the soda tax led it to lay off workers and Coke said it didn’t replace jobs of part-timers who quit. A few studies supported by anti-tax groups have quantified some of the effects on grocers: The Pennsylvania Food Merchants Association found sugary drink sales at major grocery stores down 50 percent. A study by Stanton found revenue losses at stores in Philly and in the ‘burbs but higher losses in Philly, concluding staffing changes were inevitable.

A preliminary study funded by soda tax advocate and former New York City Mayor Michael Bloomberg and performed by researchers at Penn and Harvard refuted some of these findings. It said overall revenues at major grocery chains had not dropped in Philadelphia, even though sugary drink sales had declined 57 percent.

The city also released figures showing wage taxes collected for industries affected by the soda tax were 5.8 percent higher the first six months of this year than during the same period last year.

Anthony Campisi, spokesperson for the Ax the Bev Tax coalition, said the Mayor’s Office has essentially refused to acknowledge job losses and disruption in the grocery industry.

“The response has been almost Trumpian,” he said.

Proponents of the soda tax shut down Harrisburg-led hearing in City Hall.

Proponents of the soda tax shut down Harrisburg-led hearing in City Hall.

Mark Dent/Billy Penn

The future of the tax

Soda taxes can go away. Chicago proved that. About two months after its soda tax went into effect this summer, the Cook County Board of Commissioners voted 15-2 to repeal it.

But differences abounded in Chicago. Its tax squeaked by when approved, with the County Board president breaking a tie and casting the deciding vote. Philadelphia’s tax passed Council 13-4. In Chicago, industry-commissioned polls showed 90 percent of the city against the tax. Here in Philadelphia, industry-commissioned polls show 62 percent opposed.

Chicago leaders also described vague goals for the tax, explaining it was necessary for essential county services. City officials in Philly have stressed the majority of tax revenue would go to education since first proposing it.

With no indication whether the bills in Harrisburg gain traction, the primary opportunity for change is through the courts. But judicial relief is looking increasingly unlikely for tax opponents. The American Beverage Association and a consortium of small businesses and interest groups sued for the repeal of the law last year. The lower court and appeals court have ruled in favor of the city, leaving the Pennsylvania Supreme Court as the likely last option. The ABA and its fellow plaintiffs appealed to the Supreme Court in July and so far no decision has been made. The Supreme Court declines to hear a vast majority of cases brought before it.

Stanton, who’d prefer the tax repealed, believes it’s here to stay, barring a major shift.

“You know what I’ve learned in my years of life?” he said. “Never guess what politicians will do.”