A Pennsylvania Supreme Court ruling last week upholding Philadelphia’s tax on sodas and other sugary drinks allows the city to advance borrowing plans that were placed on hold during its legal fight.

The Commonwealth’s high court ruled on July 18 in a 4-2 vote that the city had not violated state law with its 1.5-cent-per-ounce tax on sugary beverages that went into effect Jan. 1, 2017. Philadelphia enacted the tax in 2016 with plans to use revenues toward pre-kindergarten expansion and to bond against the revenue for infrastructure projects.

Philadelphia on Friday, May 8, 2015.
A state Supreme Court ruling clears the way for Philadelphia to borrow against revenue from its soda tax. Bloomberg

"We maintained from the day we proposed the tax that it stood on solid legal footing, and the Justices, like two courts before them, agreed,” Philadelphia Mayor Jim Kenney said in a statement. “The City of Philadelphia will now proceed expeditiously with our original plans – delayed in whole or part by nearly two years of litigation — to fully ramp up these programs now that the legal challenge has been resolved.”

Philadelphia is planning to issue bonds through the Philadelphia Authority for Industrial Development for capital improvements to city parks, libraries and recreation centers backed with revenues from the beverage tax paying for debt service.Kenney requested in May that the city council fund early stages of the “Rebuilding Community Infrastructure” imitative from funds already approved in the 2018 fiscal year capital budget, but said no borrowing would be implemented until the Pennsylvania Supreme Court ruled on the tax’s future.

“Once and for all, it is now beyond question that the Philadelphia Beverage Tax is not duplicative of the state retail sales tax,” Philadelphia Solicitor General Marcel Pratt said in a statement. “We are now at the point where we can move forward with the programs that this tax funds with full assurance that the Commonwealth’s highest Court has agreed with the City’s position.”

Soda tax revenues were $12.2 million short of the city’s $91 million forecast last year, which prompted the Kenney administration to scale down initial plans for $300 million of borrowing through three transactions. The city has stuck to its long-range forecast of the tax generating $500 million in revenue through the end of the 2023 fiscal year.

S&P Global Ratings downgraded Philadelphia’s general obligation bonds in March to A from A-plus citing long-term concerns about the city generating enough revenue to meet spending demands for its cash-strapped school district. The city’s debt is rated A2 by Moody’s Investors Service and A-minus by Fitch Ratings.

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