Slow first month expected for Philly soda tax revenue

The Philadelphia Office of the Mayor reported that the city’s first month of soda tax revenues – one of the cornerstones of Mayor Jim Kenney’s administrative agenda – would likely get off to a slow start.

The city still expects to meet its projected $45.6 million in 2017 revenues from the sugary drinks tax. But while final revenue figures will not be available until March, Kenney spokesman Mike Dunn said slow tax registration and retailers continuing to sell off stockpiles of pre-tax inventory meant early revenues of the “Philadelphia Beverage Tax” were shaping up to be significantly less than what the city hopes to realize in later months.

“Any inventory that retailers already had on hand as of the Jan. 1 effective date was not subject to the tax. Many dealers of sweetened beverages indicated that they would be stocking up in advance of the tax,” he said. “Thus, we anticipate that January collections in 2017 will be less than the expected monthly averages.”

With the fiscal year ending on June 30, the city hopes needs to average of about $7.6 million per month, but a quarterly city report projected just $2.3 million in soda tax collections in January.

However, these estimates also factor in a 10 percent noncompliance rate. In a blow to the city's projections, Dunn said that figure was exceeding expectations and that the Revenue Department planned to conduct audits to clamp down on tax cheats.

“It is expected that the (noncompliance) rate will be higher as we start, and will go down as our audit staff and investigators work to identity unregistered and underreporting businesses,” he said.

But critics said the Mayor’s Office was trying to gloss over declining soda sales in the wake of the tax. Jeff Brown, who operates a chain of ShopRite supermarkets in and around the city, recently told Bloomberg News that the tax had driven down soda sales in his Philadelphia stores “by 50 percent.” 

"The retailers, distributors, and restaurant owners who fought this tax warned the mayor and City Council that residents would vote against the tax by not buying products and moving their shopping trips to the suburbs," said Anthony Campisi, a spokesperson for a business coalition opposed to the tax. "Now, not only will revenue numbers be deficient, but businesses are suffering and, as a result, jobs are being threatened and stores are at risk of closing."

The city had initially projected sales decreases of around 27 percent. Dunn also responded that Brown's reported losses failed to account for seasonal variations in sales.

The Philly GOP, which has used the unpopularity of sudden price jumps in sugary drinks to drive recruitment, was similarly unmoved by the mayor’s claims that enforcement and registration issues were at fault for low collections.

"Like any true big-government stalwart, the mayor is blaming everybody but himself for a bad policy that clearly falls most heavily on poor Philadelphians and struggling small businesses,” said Philly GOP spokesperson Albert Eisenberg. 

Mayor Kenney continued to decry complaints around the tax as a multi-billion dollar industry "crying poor."

"I didn't think it was possible for the soda industry to be any greedier. They disproportionately targeted low income minorities for years, even though they knew their product was causing fatal, expensive diseases," he said, in a statement. "They can't credibly say they can't afford to absorb this cost. Philadelphia is the poorest big city in the country, we know what poor actually is, and we are trying to help those families through pre-K, community schools and ReBuild who have been milked for profits by the soda industry for years."

Dunn said the lobbying efforts and legal actions to kill the tax had done more harm than slow collections.

“Variations in the payments each month are fully expected and budgeted for,” he said. “What is impacting the programs is the soda industry’s lawsuit to stop the tax. We have scaled back our plans solely because of that.”

The Mayor's Office was adamant that slower-than-expected revenues would not impact key programs funded by the levy – namely, expanded pre-kindergarten service and the Rebuild initiative, which aims to renovate aging rec centers, public spaces and libraries. But he said the city would delay the addition of 1,000 new pre-K seats and the issuance of a $300 million bond that would underpin Rebuild construction as a result of the anti-tax lawsuit, which is still winding its way through court. He added that matching funds from the William Penn Foundation could also be jeopardized by the suit.
 

This story has been updated to include a comment from Anthony Campisi and Mayor Jim Kenney.