Thank you.8 Could you explain two points,9 Mr. Dubow. We're dictating to the10 industry that they must buy product from11 an approved distributor. I understand12 the big supermarket chains doing that,13 but what would stop a mom-and-pop14 retailer from going to Wyndmoor to15 purchase their product from a distributor16 at those locations?17
I guess under the18 legislation, there would be penalties for19 not going through a licensed distributor20 that could lead up to suspension of their21 business privilege license.22
But that to23 me in itself is heavy-handed. If I have24 a store in Philadelphia and I want to go25 171 6/10/11 - WHOLE - 110135, ETC.1 to an authorized distributor that sells2 Pepsi Cola and Coke, how can you tell me3 I can't do that?4
An authorized5 distributor -- you mean authorized under6 this act?7
An8 authorized distributor of Coca-Cola or9 Pepsi Cola that's not in Philadelphia.10
They wouldn't have11 to be in Philadelphia. If they're a12 licensed distributor, they don't have to13 be in Philadelphia.14
So tell me15 then how are you going to tell an16 authorized distributor in Allentown to be17 cooperative with this tax process?18
If they want their19 product to be sold in Philadelphia,20 that's what we would expect, yes.21
But you're22 licensing -- or you're deciding who is23 authorized and not, correct?24
No. I think25 172 6/10/11 - WHOLE - 110135, ETC.1 anybody can be authorized. There's no --2
I can't4 figure how you're going to manage this.5 How are you going to manage a small store6 in one of our neighborhoods from going to7 an authorized distributor that they can8 buy product from and collect your tax?9
I mean, it's the10 same kind of enforcement we have to do on11 all of our taxes. We have to --12
There's no13 paper trail. Other taxes,14 liquor-by-the-drink, it's on a receipt.15 I just don't understand that part of it,16 and I think we need to figure out or have17 more conversation about that.18 The other is, could you explain19 for our record the tax on the syrup that20 is so popular today? The biggest bang21 for our buck when we go into a22 convenience store is the fountain soda.23 I understand the tax on that is going to24 be 18 percent. Could you explain how25 173 6/10/11 - WHOLE - 110135, ETC.1 that's going to work so we all2 understand?3
If you buy6 containers of syrup to make soda at the7 fountain in a Wawa, that's being taxed at8 18 percent, correct?9
Is that why11 you shifted -- why did you shift -- why12 is this bill different than it was a year13 ago? Is that one of the reasons, because14 you can capture -- what motivated you to15 make these changes?16
No. I mean, I17 think really it wasn't that. It was I18 think we had some more time to kind of19 look at it and think about how this would20 work in kind of the best way, and this21 was the result of that research.22
So one of23 the significant changes in the bill we're24 dealing with today is the fact that it's25 174 6/10/11 - WHOLE - 110135, ETC.1 being taxed at the wholesale level,2 correct?3
It's being -- yeah.4 It's the transaction between the retailer5 and distributor.6
So did I17 hear somebody say that you don't expect18 that to have an effect at the pump, that19 that tax is not going to change the price20 that the consumer pays? Did somebody --21
No. I said the22 opposite of that in my testimony. I said23 it would have some effect.24
And what I said was25 175 6/10/11 - WHOLE - 110135, ETC.1 we expect that it probably will -- the2 market will probably allocate the impact3 of it throughout the market of the4 distribution of the product, at the5 distributor level, at the -- just like6 other taxes are reflected throughout the7 course of our sort of -- hit the8 consumer, among other people, in lots of9 different ways, we expect that this tax10 likely will as well. But it won't only11 hit the consumer. It will hit the12 distributor, the retailer. It will hit13 in lots of places.14
So the fact15 is that -- and the President asked the16 question about other beverages or other17 mixes, let's say, that have sugar in18 them. If it's a powder that's sold in a19 container that has sugar in it, that is20 exempt because it's not liquid? Like21 some of the Gatorades and the Kool-Aid22 that is in a paper container.23 Again, we use the word24 unanticipated consequences. There's25 176 6/10/11 - WHOLE - 110135, ETC.1 still a lot of questions of what's in and2 what's out. So I think you really have3 to have a list of what's in and what's4 out.5
Well, there's a6 list in the ordinance actually. There's7 a description. There's the definition of8 a sugar-sweetened beverage in Section9 (1)(d), and then there's a list by10 example of what they include, and they11 include, but are not limited to, soda,12 non-100 percent fruit drink, sports13 drinks, which would get at the Gatorade,14 flavored water, energy drinks,15 pre-sweetened coffee or tea,16 non-alcoholic beverages intended to be17 mixed in an alcohol drink. So those are18 examples, and I think they do cover, for19 example, the Gatorade and the Kool-Aid.20
Not really.21 Is Kool-Aid on that list as a taxable22 item or non-taxable item?23
Non-100 percent24 fruit drinks. Any non-alcoholic25 177 6/10/11 - WHOLE - 110135, ETC.1 beverages which -- no. I guess because2 Kool-Aid is the powder.3
Councilman4 Green, if you have something to add, go5 ahead, please.6
Point of7 information.8 Thank you. The question that I9 think was on the table is, there are10 powders for Gatorade, there are powders11 for Kool-Aid, there are powders for iced12 tea, all that stuff, and that would be13 sold -- it is the same product when you14 add it to water and it would be sold not15 subject to the tax. And his question16 was, what impact does that have? I17 think. I don't know, but I just want to18 clarify.19
That is the24 question. Is it taxable or not?25 178 6/10/11 - WHOLE - 110135, ETC.1
My understanding is6 that the tax applies to liquid beverages,7 but I think liquid beverages are very8 clearly definable and the ordinance9 empowers the Department of Health to10 promulgate regulations that clarify, to11 the extent that a clarification is12 required. There is an enumerated list of13 examples that are not exclusive examples14 that provide, I think, guidance to15 someone who might, for example, be16 standing in front of a counter of17 beverages or selection of beverages and18 figuring that out, or the distributor who19 is distributing them.20 I don't think it's really as21 inscrutable as people might want to make22 it. I think it's -- I think it is fairly23 self-explanatory.24
But I think25 179 6/10/11 - WHOLE - 110135, ETC.1 again to end this, that we don't want an2 unintended consequence to be the people3 are going to pay more for purchases that4 they shouldn't be. If that product, a5 Nestle tea, is not intended to be taxed6 and it turns out that the distributor7 thinks it's something that should be8 taxed, that Mrs. Jones in the9 neighborhood is going to wind up paying10 more for it. I think it's got to be11 clear as a bell of what's in, what's out,12 and right now it is not.13
And that's the14 reason -- one of the things that the15 legislation includes is that the Health16 Department will put out regulations that17 will show exactly what is in and what18 isn't.19
But you want20 us to vote on something that we don't21 know what we're giving you authorization22 to include as a taxable item or not. I23 mean, that's not very -- I don't think24 that's a nice thing to ask us to do.25 180 6/10/11 - WHOLE - 110135, ETC.1
Well, I think2 that's why the legislation actually shows3 by category what's in and what's out and4 then shows a list of examples.5
And specifically6 with respect to powder as opposed to the7 liquid form of the beverage, to the8 extent that that's not clear, we can9 amend the bill to include powder.10
I think,11 again, you're asking me and my colleagues12 to be supportive of a new tax when we13 don't really know at the end of the day14 what's going to be taxable and what's not15 going to be taxable.16 And the other final statement17 is that you've taxed the syrup, that you18 can't drink the syrup, at least I19 wouldn't recommend it without it being20 mixed with something else. So that's a21 perfect example of you want to tax a22 beverage, but the syrup that makes the23 beverage isn't a beverage until you24 actually put it through a process.25 181 6/10/11 - WHOLE - 110135, ETC.1
Right, but 18 cents2 an ounce on syrup was calculated to be3 comparable to the two cents an ounce of4 liquid. So the point of the tax was to5 equate the two different concentrations6 of the sugar sweetening.7
Yes, but at8 the end of the day, in this bill, other9 than a beverage is being included in this10 tax. The syrup when it's a syrup isn't a11 beverage. It's a component, a part of a12 process. So you've added the syrup at 1813 percent, but it's not -- I don't know too14 many people that just drink straight Coke15 syrup.16
Correct, but that's17 not a lack of clarity. That's simply an18 additional factor in the tax and19 explicitly an additional factor that's20 taxable.21 So I understand you're raising22 sort of two issues. One is some lack of23 clarity with respect to things that fall24 into kind of a gray area that may not25 182 6/10/11 - WHOLE - 110135, ETC.1 explicitly be included here. One of them2 is powder. We're happy to address that.3 As I said, we can amend the bill, and4 we're happy to do that now if you'd like.5 With respect to the syrup,6 that's not a lack of clarity. That's7 just another taxable item in the category8 of sugar sweetening of beverages.9
Exactly.10 And, again, you have to understand that11 when we walk around this City, that the12 first thing people ask, they'll say, Is13 this going to be included in this new14 tax? And I'll say, Well, you know, to15 tell you the truth, I don't really know,16 but I bet you it is. And, again, clarity17 is very important here. And that Health18 Department piece troubles me a little19 bit, because if this ever does become a20 law, to have that open-ended part of it21 where the Health Department can add or22 take away troubles me a little bit.23
Well, I was just24 going to say, I think, as I said, I25 183 6/10/11 - WHOLE - 110135, ETC.1 don't -- I would hate for the2 determination about this issue to get3 stuck on issues that really don't exist4 so much. I think that the list -- the5 list that is provided in the ordinance by6 example is representative enough of the7 category of beverages that are taxable,8 that 90 percent of them are covered, and9 I think it's fairly clear, and I don't --10 so I don't think that whatever the Health11 Department needed to implement12 regulations to cover would be so broad a13 category of beverages that are not14 covered by this that they would be15 completely -- that people would be16 flummoxed by figuring out how to apply17 the tax to them. So I don't want18 people -- for the sake of the record, I19 don't want people to think that this20 issue is more complicated than it is. I21 understand that it has enough components22 that trouble people, but I don't want to23 create complications that don't exist or24 read into the ordinance more difficulties25 184 6/10/11 - WHOLE - 110135, ETC.1 than might already be there.2
-- six6 months from now, if you're fortunate7 enough to get this through -- you're8 fortunate. That doesn't mean that I'm9 for it or against it at the moment. But10 my point being is, we need to discuss --11 that's why we're here today.12
In the event14 there is something that we're missing or15 we haven't focused on, that we fix it16 now.17
Absolutely. And18 that's my point. That's why I'm saying19 for the record I don't want to -- I just20 want things that aren't -- I don't want21 to unnecessarily complicate it. We've22 got enough complications with it to not23 add more. So I just want to make clear24 what is and isn't a complication.25 185 6/10/11 - WHOLE - 110135, ETC.1
Thank you,6 Madam President.7 COUNCIL PRESIDENT VERNA:8 You're welcome.9 The Chair recognizes Councilman10 Green.11
Thank you,12 Madam Chair.13 I just have a few points on14 legal issues, not really -- you can feel15 free to respond to them. I guess the16 first is, I would add to my uniformity17 concern the fact that we're treating what18 is in the end an iced tea from powder and19 an iced tea from a different process of20 manufacture differently, et cetera, that21 applies to all powdered drinks like22 Gatorade, et cetera. I do think things23 like that are a problem. So I am asking24 you for an opinion dealing with those25 186 6/10/11 - WHOLE - 110135, ETC.1 issues and with the Commerce Clause2 issue, which I raised.3 The other thing is, could you4 explain this -- I think you testified5 that there is absolutely no concern that6 this is perfectly legal. I have before7 me proposed amendments, Section (5)(d),8 which reads, "In the event a court of9 competent jurisdiction rules in a10 decision from which no further appeal11 lies that a Licensed Distributor is not12 liable to the City for the tax, then the13 Dealer to which the Licensed Distributor14 supplied beverages being associated with15 such transaction shall be liable to the16 City for the tax."17
That doesn't mean25 187 6/10/11 - WHOLE - 110135, ETC.1 we think we'll lose one. That's just --2
I mean, if that was5 your implication, since that was the6 predicate statement.7
Well, it's8 an amendment introduced today -- well,9 not introduced yet. I guess somebody may10 introduce it on your behalf. I just11 wanted to make that point. That's all.12
And, again, it13 doesn't have anything to do with our14 evaluation of the soundness of the tax15 itself.16
No, no. I17 understand. I think the one point that18 was made in response to the President's19 question was, it is possible that the tax20 could be stayed, although you think21 unlikely, possible that the tax could be22 stayed while this goes through the23 courts, and I do want to provide the24 School District with additional25 188 6/10/11 - WHOLE - 110135, ETC.1 resources, and if that happens, we won't2 be doing that. And so there are other3 options on the table to do that; for4 example, Councilman Goode's millage shift5 proposal, Councilman Clarke's proposal to6 put money from the City side in a School7 District Accountability Grant fund type8 scenario. So that's all. At any rate,9 removes uncertainty.10 Given the events -- I said this11 to the District. I say it to you. I12 really think that with the District over13 the last couple days, we've had very14 productive dialogue and we've talked15 about the different choices for funding16 the schools. They have made some choices17 that I would say a majority of18 Councilpeople don't agree with with19 respect to things they are currently20 funding as compared to things that they21 are not funding, like, for example, the22 expanded SLAM program, the increase in --23
Point of24 information, Madam President.25 189 6/10/11 - WHOLE - 110135, ETC.1
Thank you.4 I am perplexed on how you can5 say majority about anything when it comes6 to --7
I'm not8 trying to speak for anybody else, Council9 Lady. I'm just trying to make a point.10
Well, you11 just speak for you.12 Thank you, Madam President.13
Fine.14 There were many questions from15 several Councilmembers this morning that16 implied that those of us who spoke on the17 issue agree that the summer SLAM funding18 at its full complement rather than19 children who need to just advance next20 grade, that the increase in the number of21 promise academies, which is a new22 spending item, not spending that was done23 last year, so nobody loses anything as a24 result of it, are funding choices that25 190 6/10/11 - WHOLE - 110135, ETC.1 are being made that we wouldn't make.2 When I add up all those things that were3 the process of discussion -- and I'll4 provide you with detail later -- it's5 about $40 million. And so what you're6 requesting is $66 million for the7 District, 6 of which are sort of within8 your own domain and control, 60 of which9 you want to raise taxes to provide. And10 I think we have a basic agreement on what11 the priorities are that everybody wants12 to fund or at least you and the School13 District do, although Councilman Goode14 pointed out some differences. So I just15 wanted to make sure I fully understood.16 I assume you're for restoring17 bus transportation, yellow bus service?18
Is there a20 possibility of us loaning them the $821 million sort of the way SEPTA has, which22 is what they'll be reimbursed from the23 state for -- $8 or $9 million roughly24 will be their state reimbursement for25 191 6/10/11 - WHOLE - 110135, ETC.1 yellow bus service, so that once they get2 reimbursed, they can give us that money3 back?4
Right. We don't5 think so. We looked at that. We don't6 think that would work. We heard you ask7 the question, so we wanted to look into8 it, and we don't think that works.9
And we can't10 do that through a vehicle like PIDC or11 somebody else?12
I don't think -- I13 think we found out we couldn't. We14 can --15
-- a20 definitive answer, and if we can't, why21 we can't use a vehicle like PIDC or to do22 a loan guaranty at a bank. Many of our23 local banks want bond business and other24 things.25 192 6/10/11 - WHOLE - 110135, ETC.1
Okay. So I3 bet if we're creative and collaborative,4 we can maybe find 8 million there.5 So it seems to me like we're6 getting awfully close to $50 million.7 Now, I'm not suggesting the8 Administration would make the same9 choices that we would make, but I just10 want to understand. Reduced class sizes,11 I assume --12
I want to make sure13 I'm understanding the basis of your14 question, is if we -- there are some15 things in the School District budget, if16 we cut those things, you're saying we17 would get closer?18
You're talking21 about shifting money within the School22 District budget?23
Within the24 School District budget.25 193 6/10/11 - WHOLE - 110135, ETC.1
Would you3 agree with the premise that between the4 City and State's $6.5 billion combined5 budget that we can probably find6 additional resources -- and it could be 27 million, it could be 10 million -- we8 could probably find additional resources9 without impacting any significant10 services being provided?11
Yeah. I think you16 would be surprised if I said sure.17 First, the School District18 budget assumes $57 million in charter19 school funding, and the list that we've20 put out also assumed that what the House21 republicans put in for the Accountability22 Block Grant will actually make it through23 the process. So we're actually counting24 on about $80 million that's not in the25 194 6/10/11 - WHOLE - 110135, ETC.1 Governor's budget. So we are assuming2 additional resources from the state.3
On the City side --5 let me finish, sorry. On the City side,6 I mean, I think given where our fund7 balances are and the uncertainties we8 face, I don't think that it would make9 sense to shift money from the City over10 to the District.11
Okay. I'm12 going to say this for the record rather13 than for the purpose of engaging in a14 colloquy.15
We received20 a letter last year from the Mayor that21 said -- or it could have been from you, I22 don't recall -- that said basically we23 need a $20 million fund balance in order24 to deal with any cash flow issues or25 195 6/10/11 - WHOLE - 110135, ETC.1 other things that may arise during the2 year.3 We have within the4 Administration's budget 4 million for the5 winter, which we didn't have last year,6 for example, and so there's more of a7 cushion available to Streets in the case8 of emergency. And so I guess it's my9 premise that we have 30 million in the10 year-end surplus to apply to the schools11 next year.12
I think the13 difference is that the money that we give14 to the District would be recurring. So15 it would be $30 million a year, which16 would mean that by the second -- by 2013,17 we'd have given $60 million and our $6318 million fund balance would be 3 million.19
But I'm24 going to challenge the premise. And,25 196 6/10/11 - WHOLE - 110135, ETC.1 that is, a bill passed the House two days2 ago that eliminated our3 maintenance-of-effort requirement for any4 funds that we pass this year in favor of5 the School District over to them. I6 understand that that will be well7 received in the Senate, so we are -- I'm8 working under the assumption that we're9 talking about a one-year obligation, and10 recognize that frankly given the state of11 the economy and the fact that it looks12 like things are leveling off and not13 growing or worse, we're going to be14 continuing to have these discussions,15 unfortunately, for the next few years and16 maybe even in the position of making hard17 choices again on the City side next year.18
I think that's19 absolutely right. Our challenge is that20 we have to have a plan that's consistent21 with current law. If current law changes22 while we're in the middle of these23 discussions, then I think it's a24 different discussion, but right now it's25 197 6/10/11 - WHOLE - 110135, ETC.1 a recurring obligation.2
Yes.5 The Chair recognizes Councilwoman Tasco6 for a point of information.7
The state8 did allow us to appropriate money to the9 School District without having to10 continue that appropriation. It does not11 take away the problem for the following12 years, right?13
So what we16 need to kind of look at is what we're17 doing from here forward.18
That's21 absolutely a true statement, and we do22 budgeting every year and we don't know23 what resources the state is going to24 provide next year or if the current25 198 6/10/11 - WHOLE - 110135, ETC.1 District budget is already built on2 shifting sands because of the 57 million3 Mr. Dubow already mentioned.4 Okay. I have no more questions5 for Mr. Dubow. Thank you.6
I apologize.12 I just wanted to ask about the CPI13 adjustment in the soda tax bill.14
What is the16 purpose of -- I mean, CPI can be 317 percent. We're about to maybe go under18 an inflationary period a lot of people19 say. It could be 15 percent.20
It's really to have21 the tax kind of keep up with inflation,22 so that in five, ten years, we're not23 back saying we'd like to increase it. I24 mean, that's the rationale.25 199 6/10/11 - WHOLE - 110135, ETC.1
Rather than2 having to come back to City Council and3 demonstrate that they've been accountable4 and need more money.5
Well, I mean,6 really it's to keep up with what's going7 on with prices.8
Thank10 you.11 Are there any other questions12 from members of the Committee?13 (No response.)14 COUNCIL PRESIDENT VERNA:15 Seeing none, thank you.16
At21 the request of the stenographer, we're22 going to have a 15-minute recess so we23 could all stretch our legs. We'll be24 back in 15 minutes.25 200 6/10/11 - WHOLE - 110135, ETC.1 Thank you.2 (Short recess.)3
We're4 now back in session. I would ask the5 Councilmembers to please come to the6 Chamber.7 (Pause.)8
Our9 next witness.10 MR. McPHERSON: Our next11 witness is Helen Gym.12 (No response.)13
Is14 Helen Gym here?15 (No response.)16 MR. McPHERSON: Anne Croisier.17 (Witness approached witness18 table.)19
Good20 afternoon. Please identify yourself for21 the record and proceed with your22 testimony.23
My name is Anne24 C. 3 Doctors at the Hospital of the University4 of Pennsylvania Medical Center are really5 concerned about children drinking soda6 and sugary drinks. 14 The African American population15 in Philadelphia is very large. All of my16 friends are African American. 18 About 20 or 30 years ago,19 people came down with diabetes in their20 50's or late 40's and serious21 complications would hit in their 70's or22 80's or late 60's. Now people are coming23 down with it, children, at the age of 14,24 13, 12, 11, 10, 9, 8. I thought everybody knew the4 serious complications that can result5 from diabetes. You can lose your arms, lose your legs,7 go blind, end up on kidney dialysis or8 need a kidney transplant. That could9 happen to those children. 12 I don't want to see the13 delivery truck drivers from the soda14 companies lose their jobs. We should15 encourage Coke and Pepsi to advertise16 Dasani, which Coke makes, and Aquafina,17 which Pepsi makes. And I believe it's18 either Dole or Tropicana, which one of19 them makes -- and it's really yummy,20 fruit juice blends. We should encourage21 soda companies to advertise and try to22 sell healthy drinks such as water, 10023 percent fruit juice, 100 percent fruit24 juice blends. 3 And also skim milk and non-fat4 milk is also important for little5 children to drink. 13 So should everyone in Philadelphia. 16 Soda is also full of sodium and17 harsh chemicals. These are bad for your18 health. Sodium is bad for blood pressure19 and heart health. We should definitely20 tax soda. 22 We should also tax coffee and23 energy drinks. I say except perhaps24 green tea. 1 weight. McDonald's coffee is mild and2 like the type you would have at home, but3 Dunkin Donuts and Starbucks coffee is4 really strong. That's really bad for5 your health. 8 We should tax all beverages9 except water, 100 percent fruit juice,10 100 percent fruit juice blends, skim milk11 and non-fat milk. People should want to12 eat healthy. I learned from working at13 Independence Blue Cross that 50 percent14 of health conditions can be prevented by15 proper diet and exercise. Who wants to16 come down with diabetes or have a heart17 attack or stroke? 20 My faith believes your body is God's21 temple. 22 Not everyone is a person of faith, but23 many people in Philadelphia are,24 especially African Americans. 1 faith should try to eat healthy and2 exercise, and even people who are not of3 faith should try to eat right and4 exercise for the sake of their health and5 well-being. And I think perhaps also we6 should tax all unhealthy foods. And it7 isn't just soda. 14 That's full of fat and full of sugar. We15 should tax -- and fried food is bad for16 your health, and so are white17 carbohydrates like white rice and white18 pasta. 20
Thank21 you so much for coming here to testify.22 Our next witness.23 MR. McPHERSON: Wrenton Wright.24 (Witness approached witness25 206 6/10/11 - WHOLE - 110135, ETC.1 table.)2
Good3 afternoon. Thank you for your patience.4 Please identify yourself for the record.5
Good afternoon,6 Madam President and Councilmembers. 12 I live, work, play and invest13 my time in Philadelphia. My son was14 educated here in the Philadelphia school15 system as well. 3 What the sugar beverage excise4 tax purports to do is predictably raise5 supposedly needed funds. It won't. What6 this tax does do is raise two cents per7 ounce on a grocery product sold in this8 City and consumed daily in tens of9 thousands of homes and outlets across the10 City and beyond. 1 per gallon. 67. 66, and that's all14 before any likely retail markup. 6 Consumers make many choices. What7 consumer will pay double for a product8 that they can get for half that price a9 short walk, drive or just five minutes10 away? So, for instance, the pricing in11 Philadelphia that we showed you is going12 to in some cases double. 7 With about 35 percent of the8 industry sales occurring in small stores9 in the City, why would the owners, these10 small entrepreneurs, buy their 15 or 2011 cases a week at double the price from the12 Philadelphia manufacturer when they could13 easily drive ten minutes or so to a14 Costco or a Walmart, which are authorized15 distributors outside the City, stock up16 there and save? 20 Initially our hard-working, tax-paying21 employees who sell and distribute in the22 City, like those at Pepsi at the23 Roosevelt Boulevard. Who else does it24 hurt? 1 grocery firms unable to spread the2 taxpaying in sales over outside the City3 locations. And not to mention our union4 workers, who we have supporting us today5 through their representation that you'll6 hear from later. It also hurts7 restaurant owners, families without cars8 and those who have to walk to shop. 13 It will harm firms and neighborhoods in14 the process if enacted. Has anyone15 thought about the likely regular 816 percent sales tax lost on our existing17 sales? 1 commission loss and jobs when the sales2 downsize occurs? 6 It will also have a perverse7 incentive to "game" the system. And by8 gaming the system, I mean having a white9 fleet of trucks that are non-branded and10 non-union workers dropping off our11 products to cash-selected stores that12 will be untaxed from nearby counties. In13 the end, the consumer will shift to avoid14 the tax, buying outside the City. Sales15 in the City will decline, and retailers16 and others will be hurt, and the City17 loses. 4 Finally I ask, more than5 likely -- finally I state, more than6 likely I will see each of you7 Councilmembers with our union employees8 of the two Pepsi facilities in the City,9 perhaps with some of our customers and10 other negatively affected suppliers11 during the next weeks in meeting and12 outreach. 15 I recommend you read the16 various signs posted throughout the room17 on the actual cost of this outrageous tax18 idea and the full impact it will have19 upon stores, producers, unions, bodegas20 and other lawful wage-paying employers in21 the City. 24
Thank25 214 6/10/11 - WHOLE - 110135, ETC.1 you very much. We appreciate your2 testimony.3 (Applause.)4
Thank5 you.6 MR. McPHERSON: Our next7 witness, Mary Louise Butler and Jack8 Barry.9 (No response.)10
I'm11 sorry. Councilman Green, did you want to12 be recognized?13
Yes.17 COUNCIL PRESIDENT VERNA:18 Mr. Wright, do you mind coming back to19 the witness table, please.20
Thank you,23 Mr. Wright. Without getting into I think24 what the impact on sales or anything else25 215 6/10/11 - WHOLE - 110135, ETC.1 was, Baltimore imposed a per-soda,2 per-bottle or per-can tax of two cents --3
-- on5 sugared-sweetened beverage? And what was6 the reaction of Pepsi when that happened?7
We literally had8 to close facilities due to that impact.9 So it was job losses, plus also obviously10 sales declines. The sales declines11 preceded the job losses.12
I don't know that15 number exactly.16 We lost 77 jobs in Baltimore17 because of that.18
Thank24 you.25 216 6/10/11 - WHOLE - 110135, ETC.1 Our next witness.2 MR. McPHERSON: Is Mary Louise3 Butler and Jack Barry here?4
I'm5 sorry, Mr. Wright. I wasn't paying6 attention.7 Councilman Jones.8
Thank you.9 What was your gross receipts10 pre that per-can tax in Baltimore?11
I don't have that12 information. Let me see if someone does.13
What was the14 gross receipts upon the decision to close15 those facilities in Baltimore?16
Thank you.23 MR. McPHERSON: Again, is24 Ms. Butler and Jack Barry here?25 217 6/10/11 - WHOLE - 110135, ETC.1 (No response.)2 MR. McPHERSON: Joel Naroff.3 (Witness approached witness4 table.)5
Good6 afternoon. Welcome. Please identify7 yourself for the record.8
Yes. My name is9 Joel Naroff. 15 Previously I stated my16 skepticism about the revenue-raising17 abilities of this tax, as well as the18 negative message that imposing this tax19 could send to the broader business20 community. 22 First, I'd like to make it23 clear that this tax will indeed fall on24 the retail marketplace. 1 being charged to the wholesaler, if you2 understand that -- this tax could raise3 wholesale costs by an amount equal to the4 value of the product, and the wholesaler5 only makes a margin. Even if they make6 20 percent, they'd still have to pass a7 minimum of 80 percent through just to8 break even. More than likely, they will9 pass 100 percent of the tax through to10 the retailer. So this tax will fall11 entirely on the consumer. 1 For larger retailers, the added2 costs, as has been suggested, could3 theoretically be spread across a wide4 variety of products, not just beverages,5 or across geographies. 13 As a result of that, stores14 such as even the stores and chains will15 likely wind up what we call price16 discriminating; that is, they'll charge17 different prices in different stores18 where it's feasible, and they'll make19 every attempt to do that in order to20 recoup those prices. 1 example of that, that was a reduction in2 demand that came from a relatively small3 increase in price. 6 Small and midsized retailers7 who depend upon sugared drinks for a8 significant portion of their revenue9 could not absorb the increase in these10 taxes. If they did so, they'd basically11 cut sharply into their earnings. 14 Since the bodegas of the City tend to15 service the less affluent neighborhoods,16 the tax is likely to hurt the poorest17 residents. 1 business. Their earnings are reduced2 either by forcing them to reduce sales or3 to accept some of the higher taxes. 9 But it's not just retailers who10 would be harmed. All the tax would have11 to be passed through by vending machine12 operators. 21 A meal can be profitable if just a soft22 drink is purchased. 2 The outside level of the tax3 would also create major marketing4 problems. A restaurant will no longer be5 able to afford free refills. 7 Finally, there are those8 restaurants that use dispensers of soft9 drinks. That portion of the market could10 disappear, as the cost would be11 uncontrollable, forcing many firms to12 change their mode of operation. 18 The City is proposing a tax19 that could sharply raise prices, and20 large increases in costs are what catch21 consumers' attention and cause large22 changes in purchasing behavior. 2 Basically the greatest impacts3 would result from the typical edge effect4 where sharp geographic price5 differentials are created. 11 With such a large tax,12 enforcement becomes a major issue,13 especially for the smaller stores. 1 who operate in the City which will be2 winners and which will be losers. A3 selective taxing program has to raise4 real questions about future tax actions5 in the minds of current businessowners as6 well as firms considering locating in7 Philadelphia. 12 Nevertheless, instead of further13 complicating an already Byzantine tax14 structure, if your solution is to15 increase taxes, you should look towards16 ways that are more broader based, which17 are also more efficient than specific18 taxes. This is not -- this tax is not19 likely to raise the expected revenue,20 which may be why the estimates cannot be21 guaranteed. 2
Thank3 you very much.4 Are there any questions from5 members of the Committee?6 The Chair recognizes Councilman7 Green.8
Thank you.9 I think I'm about to ask an10 economist questions to which you can give11 simple answers.12
So I just14 wanted to follow up some of the threads15 of your testimony like about, for16 example, if there's a McDonald's on one17 side of City Line Avenue and a Wendy's on18 the other side of City Line Avenue or a19 cheese steak place like Larry's Cheese20 Steaks on one side of City Line Avenue21 and a Wendy's across the street on the22 other side of City Line Avenue, where are23 people going to shop who want a soda with24 their meal?25 226 6/10/11 - WHOLE - 110135, ETC.1
Well, that's2 reasonably clear, but being an economist,3 it's never totally clear. Obviously the4 McDonald's in the City of Philadelphia5 would be under intense pressure to absorb6 as much of the tax as they possibly7 could. But if you keep in mind that they8 probably cannot sell very much of that9 product given the enormity of the tax --10 the problem is the size of the tax --11 that more than likely they would be12 priced out of that market, because13 anybody who would want a drink with their14 meal would not patronize the15 Philadelphia-based fast food restaurant.16
Right. What17 are the margins of a typical fast food18 restaurant, for example; do you know?19
I am not certain.20 I can give you a guess, but even if21 you -- even if you took like 20 percent22 or 25 percent --23
It's less24 than that, yeah.25 227 6/10/11 - WHOLE - 110135, ETC.1
And a large4 portion of the product they sell is5 sugared-sweetened beverages.6
So you're9 basically making a lot of businesses that10 are near the City line, whether they be a11 supermarket where there's another12 supermarket within a few miles, whether13 they be a fast food store when there's14 another fast food place within a few15 miles, whether they be a 7-Eleven inside16 the City limits and a Wawa just out,17 you're making all of those businesses18 that have great profits from19 sugared-sweetened beverages marginal or20 no longer profitable.21
That's exactly the22 point, and there's two things. The edge23 effect is real, because, again, the price24 increase is likely to be extremely large.25 228 6/10/11 - WHOLE - 110135, ETC.1 But it is also, as I pointed out, an2 issue for family restaurants even within3 the middle of the City. The beverage is4 a very, very high return.5
No. I6 understand. You may be making7 restaurants whose typical margins I8 think, according to the Restaurant9 Association, are below 10 percent, like 610 percent in the City of Philadelphia.11 You're making them marginal or not12 profitable.13
As long as they18 comply with the law, which gets to the19 avoidance issue.20
And so when21 this is a situation you're faced with,22 going out of business or not having any23 profit for all your effort or very little24 profit, your choice is likely to be to25 229 6/10/11 - WHOLE - 110135, ETC.1 not comply with the law. Would you2 agree?3
Well, obviously it4 depends on the restaurant. If you're a5 chain or a franchise -- if you're a6 franchise, then you're going to look for7 any way. If you're a chain, you probably8 go through your distributor. But more9 than likely, you're going to look for any10 way to do it.11 But I think what's important12 given Mr. Dubow's testimony is that it's13 limiting the suppliers. For smaller14 restaurants, for pizza places, for15 bodegas, if they want to go to a Kmart in16 Delaware County and buy 20 cases of soda,17 because that's the way they would want to18 do it because they could get it for $2 a19 12-pack, you're limiting their legal20 ability to really lower their costs or21 minimize their costs of operation,22 because now you're forcing them into a23 certain supplier. So essentially what24 you're also doing is limiting the ability25 230 6/10/11 - WHOLE - 110135, ETC.1 of a purveyor of a beverage to find the2 lowest cost supplier possible.3
I just4 wanted to make the point that when you5 concentrate a tax on a single industry or6 product like this, the jobs that will be7 lost -- and I don't think we're talking8 about if jobs are lost. The jobs that9 will be lost are not just jobs of people10 who drive the soda or the people who work11 at the bottling plant, but also in12 neighborhood restaurants, in 7-Elevens,13 in McDonald's, in a lot of businesses14 that were profitable that are now15 becoming marginal.16
That's exactly17 right, and that's why I started off by18 making it clear that this tax falls on19 the retailer. It is not on the20 wholesaler. The wholesaler may collect21 it, but, again, because of the size of22 the tax and given profit margins of23 wholesalers, all of that tax is going to24 be passed through to the retailer. So it25 231 6/10/11 - WHOLE - 110135, ETC.1 becomes a retail issue, and the2 retailers, whether it's a store or a3 restaurant or --4
Or it won't5 be passed through because the business6 won't exist.7
That's right. And8 there will be -- well, what will happen9 is that the wholesaler will lose all its10 sales, and I think that that was the11 point from the Pepsi representative.12
So how13 many -- I mean, we're talking thousands14 of jobs, aren't we?15
Well, I don't have16 an estimate of that. I can't tell you17 how many it is, but I don't think it will18 be insignificant.19
Thank21 you.22 The Chair recognizes Councilman23 Jones.24
Thank you,25 232 6/10/11 - WHOLE - 110135, ETC.1 Madam President.2 Just as a point of3 clarification, my colleague asked you if4 there was a Larry's on the City Avenue5 side and some other brand name across the6 street, which one would survive, and I'm7 going to give you the answer. It is8 Larry's, because it's the unique cheese9 steak restaurant in my district. But on10 your point --11
But Larry's may12 not if they have to pay the -- if they're13 in Philadelphia and they can't sell the14 sugared products, or they have to spread15 it across all their beverages and,16 therefore, the margin on all of their17 sales goes down significantly.18
But if we19 look at the Starbucks example on City20 Avenue, there were two Starbucks on the21 Bala Cynwyd side, which arguably has less22 operating costs than the Philadelphia23 side, the two on the suburban side.24 Actually, one reduced hours and the other25 233 6/10/11 - WHOLE - 110135, ETC.1 closed altogether and the City side2 Starbucks were successful and in fact are3 three still open. And one of the reasons4 when we dug beyond the layer of cost5 differential between City and suburban6 was more of factors of traffic patterns7 and other things that were impeding the8 other success of those.9 So for us to overdramatize what10 the cause and effect are, it's slightly11 an exaggeration to the point of the cause12 you're trying to represent, which I agree13 you should do.14 But one other thing, when you15 mentioned the Baltimore example -- I'm16 going to ask you the same question I17 asked the previous person that testified.18 What was the gross receipts in Baltimore19 before the tax and then after the tax20 that resulted in the closing of the21 factory? What were the gross receipts?22 What were those impacts?23
I don't have gross24 receipts. What I was told was that25 234 6/10/11 - WHOLE - 110135, ETC.1 sales -- and I wasn't told whether it was2 units or gross receipts -- were reduced3 by double-digit amounts.4