Council Demanding Answers on Use of Soda Tax Funds

Mayor Jim Kenney’s push to pass a soda tax in Philadelphia, which could culminate next week with a City Council vote on a 1.5-cent-per-ounce tax on sugary drinks and diet beverages, was pitched from the outset as a way to raise money for popular new initiatives.

The city is hoping to expand pre-K, fix up parks and recreation centers, and establish community schools that double as neighborhood social-services hubs. All City Council members have been supportive of those goals, but what got some of them over the hump yesterday — when a majority of the committee voted in favor of the tax — was a different issue altogether. For a few members, including Council President Darrell Clarke, it came down to the city’s fund balance. 

Without getting into the weeds, it’s important to note that the fund balance isn’t its own fund. It’s more like a surplus, the yearly difference between what the city’s paying out and what it’s collecting in revenue. And while it isn’t allocated for specific programs, it’s important because credit-rating agencies will sometimes downgrade a city’s rating if the balance is too close to $0.

Councilman Allan Domb, who had been on the fence about the tax and said he was working yesterday to try to build a compromise on a lower tax rate, said shortly before the vote that the fund-balance issue was what convinced him to vote for a 1.5-cent tax.

“I don’t want to be in 2018 and only have $11 million in the fund balance,” Domb said. “That’s just not acceptable. Moody’s, one of the rating services, says we should strive for six percent of our budget, which is $4 billion, in the fund balance. We need to build up the fund balance.”

Other Councilmembers sounded peeved that the fund balance had entered into the equation at the last minute. Jane Roh, a spokeswoman for Clarke, said Council had been asking why the administration was seeking revenue beyond what it planned to allocate for weeks, and only received an answer on Wednesday. Clarke ultimately voted in favor of a 1.5-cent tax, but then on Thursday introduced a resolution calling for Council 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.”

.@PHLCouncil & the public we represent deserve greater transparency. https://t.co/AKxuP8yfmP

— Darrell Clarke (@Darrell_Clarke) June 9, 2016

Councilman Bill Greenlee said that he was in meetings discussing whether Council could approve a rate below 1.5 cents when members were told that the fund balance was lower than the city anticipated it would be. He criticized the administration Wednesday for not being forthright.

“My main thing is trying to get the programs funded but keep the price as low for the consumer as we possibly could,” Greenlee told Philly Mag on Thursday. “And that’s why we were looking at the tax rate and what we could do with it and all that stuff, and again, having all the information would have been a little more helpful.”

The administration maintains that the information has been out there all along, and that Council should have known that the yearly soda-tax revenue wasn’t totally allocated to the three major initiatives in every year of the five-year plan presented in March.

“The Mayor simply did not make a big issue of it at public events because it wasn’t a major new program or even a recurring source of revenue for the fund balance,” Lauren Hitt, a Kenney spokeswoman, wrote in an email.

The 1.5-cent-per-ounce soda tax is expected to bring in $91 million a year for the next five years. According to Hitt, a total of $24 million of that money will go to the fund balance over those five years. (And how that works is tricky: $41 million in soda-tax revenue will be dedicated to the fund balance in the middle three years of the five-year plan, while withdrawals from the fund balance in the first and last years will put the total surplus at $24 million.)

Anthony Campisi, a lobbyist working on behalf of the soda industry, said that the public and Councilmembers were misled about where the soda-tax revenue was going, even if the difference between the allocation and the revenue was included in the budget.

“This was buried in budget details and if you sat down and did the math you could figure this out because it’s in the language and it’s in the line item,” Campisi said. “But this was not disclosed. This was not part of [the Mayor’s] $1.4 million messaging campaign.”

Still, it seems like a done deal. On Thursday, City Council sent out a press release saying that it has reached a compromise on the soda-tax proposal and Clarke told reporters, “We got what we got. We need to move ahead.”

And now Council will get to grill the administration in hearings on the city’s financial health. It’s quite possible those hearings will unearth some good ideas and important information. But make no mistake. It’s also Council’s way of punishing the mayor for bringing up the city’s fund balance so late in the game.

Follow @jaredbrey on Twitter.