Hit & Run

Philadelphia Says Soda Tax Revenue Exceeded Projections in February, While Pepsi Stops Offering Two Liter Bottles, Six-Packs

The city wants to borrow $300 million based on how much it thinks it'll raise from the tax.

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Philadelphia's Department of Revenue says it collected $6.4 million from the city's new soda tax in February, and says that's more than the $5.9 million it projected. Last year the city collected $5.9 million on a projection of $2.3 million. City officials said their projections were conservative because they weren't sure how long it would take for various businesses to comply with the tax, which is required to be paid at the distributor level.

While the city was still optimistic last month that it would meet its annual projection of $91 million, that would require monthly revenue of $7.87 million for the remainder of the year. Mayor Jim Kenney initially claimed the tax could bring in $400 million over five years when he proposed a three cent an ounce tax. The tax that passed was half as large, at one and half cents an ounce, although at $91 million for the first year the projections haven't been cut in half. The projections seem particularly unrealistic given long term trends in soda sales, which have been down for more than a decade, hitting a 30-year-low in 2016.

Soda companies, which are challenging the Philadelphia tax in court, also say sales are down in the city, which anyone living here should be able to confirm. Pepsi said this week it would stop distributing two-liter bottles and six packs to stores in Philadelphia because of the effect the tax has had on sales. "Because of the Philly Beverage Tax, people are buying far fewer taxed beverages," Pepsi wrote in a letter to store owners, as ABC 6 reported, "particularly those in larger package sizes because they now cost so much more." Pepsi previously laid off dozens of workers in Philadelphia-area plants due to the tax.

The city uses Pepsi's opposition to a tax that obviously harms it as a reason to dismiss any of the company's complaints. "Pepsi's reasoning for their layoffs and for no longer distributing certain beverage sizes is all self-reported by a company that is actively fighting to overturn the beverage tax in court," a city spokesperson said according to ABC 6. Pepsi says its sales are down 40 percent in the city and up 10 to 15 percent outside the city.

Kinney credited his ability to get a soda tax passed when his predecessor, as well as mayors in other cities, failed to do so, by framing it as an effort to raise revenue for specific proposals (public funding for things like universal pre-K and parks in particular) as opposed to an effort to incentivize healthier choices, as it had often been framed previously. That framing just adds another level of deception. While vice taxes are loathsome tools of social control, at least their nature as taxes whose revenue declines in the long term as consumers alter habits to avoid the tax, is incorporated into the proposal—it's the whole point. Not so here, where the city promises to fund all kinds of things with the new tax, without taking into account that revenues will by design decline, and in fact denying that reality all together. The city wants to get around the problem by borrowing $300 million before the revenue is in to fund the projects it insisted the soda tax would pay for, and blames the ongoing lawsuit, set to go to trial next month and to which state representatives from both major parties have signed on with amicus briefs, for slowing down that process of borrowing money based on rosy revenue projections.