Philly Council pledges to investigate city finances after surprise amid soda tax vote

Philadelphia Mayor Jim Kenney talks to reporters about details of the new tax on soda and sugary drinks. (Emma Lee/WHYY)

Philadelphia Mayor Jim Kenney talks to reporters about details of the new tax on soda and sugary drinks. (Emma Lee/WHYY)

As Philadelphia City Council took the first step toward approving a 1.5-cents-per-ounce tax on soda and sugary drinks Wednesday night, one detail left council members and reporters scratching their heads.

Before the vote, City Finance Director Rob Dubow laid out where the revenue of the final deal would go: expanding pre-K, community schools, debt service on a $300 million bond to reinvest in the city’s parks, recreation centers and libraries, and a tax credit program for businesses that sell healthy beverages. (Initial plans to contribute to city’s pension liability and energy efficiency upgrades in city-owned buildings were cut.)

“And then, a portion would go to fund balance,” Dubow said. 

According to Council President Darrell Clarke, that last item was unknown to members of council until Wednesday afternoon. Councilman Bill Greenlee criticized the administration for not making that clearer. Opponents of the tax, including the American Beverage Association and the local teamsters union, immediately siezed on the issue, calling it a bait-and-switch.

On Thursday, Mayor Jim Kenney called it a “minor issue” that is being twisted by critics of the tax. 

“This is the last-ditch effort of the soda companies to throw a monkey wrench into the process,” he said. 

So what happened? 

According to Kenney spokeswoman Lauren Hitt, the fund balance is the difference between the amount of revenue the city raises and the amount it expects to spend in a given year.

If it’s passed in a final vote in City Council next week, the tax would go into effect in January 2017 and is projected to generate $400 million over the next five years. As the pre-K and other programs are rolled out over those five years, the difference between the cost of implementing those programs and the tax revenue will be diverted to the fund balance. That difference adds up to $41 million, which includes $30 million in year two of the tax (FY ’18), $10 million in year three (FY ’19) and $1 million in year four (FY ’20). In years one and five, Hitt said, the programs will cost $5 million and $14.6 million more than the tax revenue brings in, respectively, and so no money will be diverted in those years. 

Hitt said the administration had always proposed using some of the revenue for the fund balance.  The net balance of that fund could fall as low as $15 million in fiscal year 2018 likely causing credit rating agencies to lower the city’s rating. 

However, it appears City Council is not letting go of the issue.

On Thursday, Clarke announced a series of hearings on the city’s financial health.

“City Council is deeply concerned about new information we have received in the last days of the budget process regarding Philadelphia’s true fiscal health,” Clarke said in a statement. “The legislative branch and the public we represent deserve greater transparency in how public dollars are raised, allocated, and utilized.”

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