Nutter wants hike on cigarettes & booze
May 17, 2013 – By Damon C. Williams, Staff Writer
Article originally posted in the Philadelphia Tribune
Officials with the financially distressed School District of Philadelphia have repeatedly said that the district would need an infusion of funds — at least $60 million from the city and $120 million from the state — to ensure its survival. The city took a big first step in answering the call, as Mayor Michael Nutter unveiled a series of new tax programs and initiatives that could net the district $95 million annually, well above the district’s target.
“I am proposing a revenue package to generate new money for investing in the education of Philadelphia’s schoolchildren. This set of recommended proposals is sustainable and substantial; the key is, they are also doable,” Nutter said, flanked by Hite and members of the School Reform Commission. “As I have already previously announced the supported increase in the liquor-by-the-drink tax, our proposed increased will generate approximate an additional $22 million by increasing the tax from ten percent to 15 percent. This proposal is scheduled to start on July 1, 2013.
“I am also proposing a city cigarette tax; the city currently has a tobacco tax, but cigarettes are not included in that tax,” Nutter continued. “The cigarette tax I am proposing will begin in January 2014, and will be set at $2 per pack. It will generate approximately $45 million in half a fiscal year.
“Almost all of the revenue from these taxes will be used to invest in the educating young children, and allows the Health Department to continue its smoking cessation programs.”
The third key, Nutter said, to delivering the much-needed funds is giving more power to Tom Knudsen, who is tasked as chief revenue collector. Knudsen is intimately aware of the district’s sinking finances, as last year he orchestrated a $300 million-plus bond deal so the district could get through the academic year.
Nutter has said a ramped-up delinquent tax office could net the district upward of $28 million.
While Nutter and Hite voiced optimism — with neither saying what would happen if the state doesn’t come up with its share – there are roadblocks to the district getting the money.
First and foremost, the city cannot pass any new tax laws without first receiving authorization from the General Assembly. Although state Senator Vincent Hughes has introduced a pair of bills — Senate Bill 944 and Senate Bill 945 – that would spur action at the state level, in city coun
cil hearings, Councilman Bill Green voiced strong reservations about Nutter’s package — and the city’s relying on action from the assembly.
“While I support the mayor’s proposals to help schools, they are unlikely to pass the General Assembly, and frankly, they miss the point,” Green said from the council floor. “Even if they do, there is no more help coming from the General Assembly, so there will be a $200 million gap. The city is simply not able to fund the gap for the current failing system by itself. The issue today is far more complicated than just throwing more money at the school district.
“The question is whether the district is too big to succeed.”
Nutter’s proposal alsoreceived a chilly response from the Philadelphia Tavern Owners Association/Licensed Beverage Association, whose president, John Longacre, blasted the plan as another unfair tax hoisted upon small business owners and average-Joe consumers.
“I think it’s a terrible idea. Philadelphia is the only county in the state that already has an over-the-counter liquor tax; every other municipality in this state is able to function their government without putting it on the backs of consumers,” Longacre said. “Philadelphia is already the second highest-rated city in America in terms of tax burdens on its citizens. Businesses in Philadelphia are already paying an inflated sales tax, paying a four percent wage tax, already paying a net gross profit tax and a business privilege tax. We are already paying taxes that don’t even exist in other counties, and we’re already overpaying on taxes as is; and now they want to add another tax that doesn’t exist anywhere [else] in the state.”
Longacre does care about the plight of public education — in his view, it’s just unfair to ask businesses and taxpayers to do the bulk of the heavy lifting. Instead, Longacre believes a leaner city government would cure many of the city’s fiscal ailments.
“In our opinion, the city needs to be run more efficiently, and you can [help the district] without compromising on the backs of business owners. The city could cut wasteful spending, but more importantly, if the city collected on real estate taxes at a rate commensurate with other cities, it would add $100 million every year,” Longacre said. “There are other ways to fill the school funding gap, other than to put strain on an already overtaxed business.”
Longacre said Nutter apparently has considered the effect this will have on the smaller bars, theorizing that most retailers will pass the tax hike on to their customers, which will lead to establishments losing customers. To not have that happen, Longacre said many smaller tavern owners will just eat the increase, thus shrinking their margins even more.
“It makes an already existing ridiculous tax even more ridiculous,” Longacre said, noting that there is already a 10 percent tax on drinks. “The fact that national publications are reporting that Philadelphia is the second-ranked city in terms of tax burdens, and to propose even more tax increases is clearly not doing anything to address the core problem, which is the efficiency of government.”
On the government side, as Nutter thanked and congratulated Council President Darrell Clarke for his hard work on the liquor-by-the-drink tax — Nutter and Clarke talked about and worked on the bill for more than a year — Clarke was quick to point out that, although his is generally satisfied by the news, there’s still a bit left to do.
“There’s a proposal we’ve talked about as an alternative to raising real estate taxes. We’ve tried our best, as we come up with solutions to increase revenue, to do things differently, as opposed to the traditional model of, ‘we need money. Let’s stick our hands in taxpayers’ pockets,’” Clarke said. “Real estate, wage or other things that people tend to not have any alternative. But if you have a liquor-by-the-drink or cigarette tax, and if you don’t want to pay that tax, you can simply not drink or simply not smoke.
“The last two tax votes for the schools were last minute, and they were very difficult votes, done in a way that was somewhat scattered, essentially cobbled together a series of votes from different members to try and push for measures, ” Clarke continued, noting that he was mildly surprised when he learned the figure from Nutter’s proposal was $95 million. “In spite of that, here we are with an additional $300 million-plus deficit, so it’s clear that’s not the way to fix this problem.
“I want to emphasize that I’ve said in response to the mayor’s proposal, that I am pleased with the fact that the Pennsylvania General Assembly, particularly the Philadelphia Delegation, that continues to be supportive of measures that help the City of Philadelphia,” Clarke continued. “The reality is, the school district proposal cannot be in lieu of support from the state. I have said the city’s portion of the request is the smallest part of the puzzle, so even we are successful in coming up with additional revenues for the school, it’s still not going to matter, because reality is, until you get close to hopefully the $120 million the district is requesting, and some understanding as it relates to the school district as it relates to the contract with the Philadelphia Federation of Teachers, we’re not going to be in a position to maintain the current level.”