Health Benefits of Soda Tax Downplayed as Philadelphia Sees Cash

  • Mayor proposes levy of 3 cents per ounce of sugary drinks
  • Proceeds would help fund debt service, pension contributions

Philadelphia Mayor Jim Kenney is making no pretense about the health benefits of reduced soda consumption. He wants a tax on sugary drinks to bankroll educational and community programs.

In Philadelphia, known for cheesesteaks and once voted the fattest city in America, an advertising campaign began Thursday tying the levy to the future of its children. The first-term Democrat would use the proceeds to expand pre-kindergarten, renovate parks, recreation facilities and libraries, create hubs for community programs, and shore up the city’s severely underfunded pensions.

Unlike past tax attempts in Philadelphia, where more than a quarter of residents live in poverty, proponents aren’t dwelling on the negative consequences of high sugar consumption. Instead, they’re emphasizing what the roughly $430 million over five years could do to ensure that the city’s economic recovery lifts children in a school district where nurses and guidance counselors are luxuries.

Investing in the initiatives “would then improve their chances of getting good jobs and in the end it all ties into reducing that poverty rate,” said Rob Dubow, the city’s finance director.

Worthy goals, say opponents. But the tax, at 3 cents per sugar-sweetened ounce, would hit working families and small businesses, said Anthony Campisi, a spokesman for Philadelphians Against the Grocery Tax Coalition. The American Beverage Association is funding that group, which has already aired ads and organized a City Hall rally Wednesday against the proposal.

“You should be relying on a stable revenue source and not going after one group of industries and small businesses in Philadelphia and having them bear the cost in an unsustainable and unrealistic way,” Campisi said.

City Council must approve the tax, which was unveiled with Kenney’s budget proposal for the year beginning in July. The measure, which would be shouldered by distributors, applies to non-alcoholic beverages that have sugar-based sweeteners such as sucrose and high fructose corn syrup.

The only other U.S. city with a sugary-drinks tax is Berkeley, California, where the levy is 1 cent per ounce. Mexico in 2014 implemented a tax on such beverages that raised prices by about 10 percent. The United Kingdom plans to set up a levy on the soft-drinks industry in two years. Voters in Oakland, California, will decide in November whether the city should tax sugary drinks.

Revenue Estimates

In New York, a measure that would have limited the size of sugary drinks to 16 ounces in restaurants, movie theaters, stadiums and arenas was struck down by the state’s highest court in 2014. Michael Bloomberg, who had proposed it as the city’s mayor, is the founder and majority owner of Bloomberg LP, the parent of Bloomberg News. He has made a contribution to Philadelphians for a Fair Future, which is running television, radio and online ads supporting Kenney’s push, said Kevin Feeley, a spokesman for the group.

Philadelphia estimates that based on the tax being implemented in January, it would collect about $48 million in the year ending in June 2017 and about $96 million in fiscal 2018. Over five years, besides pre-kindergarten expansion, about $56 million would go to debt service on general-obligation bonds Philadelphia would sell to finance improvements. About $26 million would flow to the city’s pension fund, which has 45 cents for every dollar in liabilities.

Campisi, the spokesman for the campaign against the tax, said the city’s numbers are unreliable. They gloss over the impact of people dodging the levy and can’t accurately account for lower consumption since the amount of the tax is “unprecedented,” he said. He said that if passed, other taxes would rise to make up for the lower revenue.

Economic Recovery

Kenney’s predecessor, Michael Nutter, twice failed to pass a sugary drinks tax. Dubow, who was also Nutter’s finance director, said those attempts weren’t tied to specific programs.

He said Philadelphia-- where signs outside casual eateries tout soda to pair with its iconic cheesesteaks and pretzels -- is ready to make history to fund the mayor’s initiatives. Men’s Fitness magazine named Philadelphia as America’s fattest city in 1999.

“People understand how important they are,” Dubow said.

In many ways, Philadelphia has recovered from the decline of U.S. manufacturing, which triggered decades of population losses from the 1950s to 2007. At 1.56 million residents, Philadelphia is growing as its educational and medical institutions draw young professionals. Its S&P Global Ratings grade is A+, four below the top and its highest from the company. The Democratic National Convention’s choice of the city as the site of its July presidential nominating convention underscored its rebound.

But fiscal strains persist. Its junk-rated school district, the nation’s eighth-largest, has struggled with deficits amid reduced state aid and rising mandatory expenses. It has cut jobs and programs while test scores lag behind benchmarks.

To sustain Philadelphia’s rebirth, the city must shore up its schools so new residents stay when they have children, said Alan Schankel, a managing director at Janney Montgomery Scott in Philadelphia.

The program to be funded by the sugary drinks tax “hopefully gets the younger kids in a better shape to enter kindergarten to 12th grade,” Schankel said. “If it improves the prospects for kids who live in Philadelphia, it’s a positive thing.”

Before it's here, it's on the Bloomberg Terminal.