Philadelphia is maintaining the long-term revenue projections from its new sugary beverage tax despite an early shortfall.
Pennsylvania’s largest city has collected $25.6 million since the tax was implemented Jan. 1 compared to $30.8 million forecasted through May 31 and is on pace to fall short of $46 million six-month goal.
The city is planning to lower its revenue estimates for the 2017 fiscal year that ends June 30, but Lauren Hitt, communications director for Mayor Jim Kenney, said the administration is holding to its forecast of $91 million in collected beverage taxes in 2018 and $450 million for a five-year period. The early revenue gap was due largely to taxes coming in $700,000 less than the $7 million projected for the month of April.
“We remain confident in those projections,” said Hitt. “We are not revising them because it would be extremely unusual for us to change long term revenue projections based on one month.”
Mayor Kenney is planning to use the 1.5-cents-per-ounce tax on sweetened drinks primarily to expand pre-kindergarten programs and other educational expenses. He also wants to earmark revenue for debt service on $300 million in planned bonds to upgrade parks, libraries and recreation centers.
City Controller Alan Butkovitz raised concerns about revenue from the beverage tax in a June 13 letter to director of finance Rob Dubow, saying based the current averages of $6.4 million a month only $76.8 million would be raised for the 2018 fiscal year. Butkovitz also noted concerns about inflated revenue forecasts citing how the Philadelphia School District budgeted far more for the first year of the city’s cigarette tax than what was netted.
“In order for the city to reach its collection goal for the current year, it would need to average about $10 million a month for the next two months - a figure that currently appears to be significantly out of reach,” said Butkovitz in his letter. “The City appears to be creating a short-term and long-term deficit through the beverage tax by not budgeting with true and accurate collection figures.”
Dubow responded to Butkovitz explaining that the city anticipated early collections would lower due to some existing store inventory not subject to the tax. He added that city is still determining how beverage sales are impacted in colder and warmer months.
“In subsequent years, seasonality will be reflected in our projections,” said Dubow. “Once we have a year of collections, we very well may find that the first few months of the calendar year have lower beverage sales than the hot summer months or the holidays.”
Philadelphia received a legal boost Wednesday when the Commonwealth Court judges in a 5-2 decision upheld a December Common Pleas Court decision allowing the beverage tax to remain. The issue now faces an appeal at the Pennsylvania Supreme Court.