Updated 9:14 a.m.
Earlier this year, City Controller Rebecca Rhynhart’s first report on the so-called soda tax sparked a war of words with Mayor Jim Kenney, whose reputation is closely tied to the controversial levy and the programs it’s intended to fund.
As the Philadelphia Beverage Tax enters its third fiscal year, the tension doesn’t appear to be letting up.
On Tuesday, Rhynhart’s office released a sleek, searchable database of all revenue and expenditures made possible by the 1.5-cents-per-ounce tax on sugary sweetened beverages. Accompanying the data was a familiar recommendation for the Kenney administration: move the money into a separate account.
That bookkeeping battle erupted when Rhynhart issued her first report of soda tax revenues in March, which showed, to some public surprise, that the majority of the soda tax revenue was sitting unspent in city’s general fund.
Why does that matter? Think of the general fund like the city’s core checking account. It supports all the day-to-day operations and expenses for the sixth biggest city in the country — all $4.7 billion worth (as appropriated for the current fiscal year). The account is basically used for everything except that which has a designated funding stream.
So by sitting in the general fund, the soda tax revenue could theoretically be allocated to things other than the trio of programs for which it was supposedly slated when it passed back in 2016: universal pre-K, community schools and the Rebuild initiative. Rhynhart reiterated those concerns this week with the release of the new search tool. And while she hasn’t explicitly accused anyone of earmarking the money for other purposes, the implication isn’t lost on Kenney’s cabinet.
The administration hopes Rhynhart is not “trying to perpetuate the [beverage] industry’s repeated false claims that the revenues are being diverted for other purposes,” Kenney spokesperson Mike Dunn said Tuesday.
The other issue now is why the bulk of revenue — three quarters of $137 million — hasn’t been spent. Some of the funding was held up by ongoing litigation over the tax between the city and the American Beverage Industry. The lawsuit concluded this summer in the city’s favor and the Kenney administration said that spending is projected to pick up in the current fiscal year.
Here’s a play-by-play of the latest soda tax data.
How much the soda tax has raised
From the time tax it went into effect in January 2017 to the end of the most recent fiscal quarter: $137 million.
…And how much has been spent
- $101 million is sitting unspent in the general fund (74 percent of total)
- $31.7 million on Pre-K programs (23 percent)
- $3.5 million Community Schools (2.5 percent)
- $605k on Rebuild projects (less than 1 percent)
What are the big expenses?
- Within universal pre-K, the largest expense was on contracts and leases with third-party companies who oversee the city’s 2,000 pre-K seats.
- For community schools, payroll accounted for the bulk of spending, at $2.7 million. That’s to fund nine community schools.
- The initiatives to rebuild Philly’s parks, libraries and public spaces have also spent only on payroll operations.
What the controller says
- In the first two full fiscal years in soda tax collections, the city consistently placed more than 70 percent of soda tax collections into the general fund, where they remain unspent. Kenney’s cabinet said spending would be slow at first, but begin picking up in 2019.
- But in the first quarter of the current fiscal year, Rhynhart’s new report showed, the soda tax generated over $20 million and spent over $4 million — again storing three-quarters of tax dollars in the old general fund.
- Even if spending is slow to take off, moving the money out of the general fund would ensure “revenue is spent only on earmarked programs and would promote transparency by making it easier to track revenue to expenses,” noted Rhyhart’s office.
- The city has not used the soda tax money to begin paying back the $500 million in bonds taken out to fund the Rebuild initiatives, though Rhynhart’s office notes those first bonds were only issued in the last month or so.
- Why is Rhynhart is closely following the soda tax in the first place? Overwhelming public interest in the tax and the programs it funds, her office says.
What the mayor says
- Don’t worry about the money in the general fund, said city spokesperson Dunn. Those tens of millions sitting will not be spent elsewhere — it’s unnecessary and atypical to move it, in the eyes of Kenney’s admin.
- Moreover, Rhynhart’s suggestion that they open a separate fund is “a red herring that again plays into the beverage industry’s attempt to portray the use of the General Fund as something nefarious,” he said.
- Regarding the implied shortfall in spending, Dunn noted that the city has incurred $1.6 in unspecified “fringe costs” related to the tax-funded programs, as well as $3 million on tax enforcement. “Those costs would also not be captured in [Rhynhart’s] numbers,” he said. (Rhynhart’s office said they did ask for this data to include in their report — but the administration didn’t provide it in time.)
- Comparing the first quarter of fiscal year 2019 with entire fiscal years to imply a trend is “extremely misleading,” Dunn said. The city does not budget quarterly. The annual budget shows spending on soda tax-funded programs — including the payoff of Rebuild debt — is scheduled to increase for the remainder of the year. “We’re surprised the Controller’s Office chose to include that,” Dunn added. “Either they don’t understand that concept, or are deliberately choosing to distort the truth. Both possibilities are disturbing.”