Kenney considering revision to soda tax

Posted: March 14, 2016

Mayor Kenney is preparing to revise his proposal to tax sugary drinks, which sets a higher levy on fountain drinks than on bottled beverages.

His spokeswoman, Lauren Hitt, said Saturday that Kenney had not meant to impose differing rates and that the bill "very likely" will be amended.

"The mayor's understanding has always been, his intention has always been, this would be taxed equitably," Hitt said.

Her words came a day after the Inquirer reported that an analysis of Kenney's legislation shows it would tax fountain beverages 50 percent higher than bottled: 4.5 cents per ounce as opposed to 3 cents. Kenney, in pitching the tax, has never mentioned the two rates, saying only that his plan was 3 cents per ounce.

Whether the apparent misstep will impact the administration's chance of passing the tax - which would be the highest in the nation - is yet to be seen. What is clear, though, is the industry fighting the levy saw it Saturday as new ammunition.

"Not only is this the highest tax ever introduced, but it wasn't very well thought out either," said Melissa Bova, director of legislation for the Pennsylvania Restaurant Association. "I think the administration needs to think about this and slow down and consider other alternatives rather than pushing through a tax they don't even understand."

The tax, which would be levied on any drinks with added sugar but not diet soda, is estimated to bring in $400 million over five years and is the linchpin for several of the mayor's key initiatives, including universal prekindergarten. It would be paid by distributors, not at the point of sale, so it's unclear how much would be passed on to consumers.

While a majority of the sugary drinks consumed in the city come in bottles and cans, about a fifth are from fountains, according to an economist hired by the American Beverage Association to review Philadelphia's proposal. Soda fountains are commonly used, for example, in restaurants, sports stadiums, movie theaters, and convenience stores.

The separate rate for those drinks can be found by crunching the numbers in Kenney's legislation, which lays out different rules for bottled beverages and the syrup used in fountain machines.

The bottled drinks would be taxed at 3 cents per ounce. The syrup would be taxed at 27 cents per ounce. That ounce of syrup, when mixed with water in a standard fountain machine, yields six ounces of soda. Thus, each ounce of fountain soda would be taxed at 4.5 cents.

Hitt on Saturday stopped short of agreeing that the ratio of one ounce of syrup to six ounces of soda is accurate but also did not defend the ratio used in Kenney's legislation: one to nine.

"We acknowledge the nine to one that was originally in there needs to be looked at further and consulted by outside experts, and we expect it will very likely change," she said.

Hitt said the administration settled on 27 cents per ounce of syrup because it is in line with the ratio used by Kenney's predecessor, Mayor Michael Nutter, in soda tax legislation he twice tried to pass through City Council.

Hitt said her understanding is that Nutter also did not intend to tax fountain drinks higher than bottled. She said the administration is looking into why Nutter's team used that rate and working with an expert to make sure Kenney's legislation would impose the same tax across the board.

"When this tax passes, the tax on distributors will be equitable for both syrup and bottled beverages," she said.

Kenney's willingness to change his legislation did little to appease his critics.

"If anything it probably makes me more worried," Bova, of the restaurant association, said. "If they tried to put this in the legislation - mistake or not - what else could happen down the line to get the money they need for their initiatives?"

Larry Miller, spokesman for the No Philly Grocery Tax Coalition, whose members include small businesses, the American Beverage Association and the union whose members deliver soda, called it a "24-hour policy reversal."

"The proponents of the tax lack a basic comprehension of the economics of all the sectors of business that would be affected by the levy," Miller said in a statement. "... It is apparent they were not aware that a higher tax rate for fountain drinks was in their legislation."

Hitt said the proposal's critics had seized upon a false issue.

"The administration proved today that we're reasonable when it comes to this tax and our small-business owners," she said.

"Big Soda showed they're willing to use any excuse to deprive Philadelphians of pre-k, community schools, and investments in our parks, rec centers, and libraries."

A City Council hearing on the proposed legislation has been scheduled for May 11.

tnadolny@philly.com

215-854-2730@tricianadolny

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