So I think we all agree with the goals of reducing obesity in the City and providing resources for that, to the extent we can. Did you look at how much we'd raise if we just went with a Chicago style model for --
It's clear that if you look on a percentage basis, the amount that's raised would not be the amount of revenue that's needed for the City.
Well, I'm 189 3/17/10 - WHOLE - BILL 100118, etc. not asking -- what's the --
What's needed is sort of what we're here discussing, but in terms of how much it would collect if we had some different level of tax that is more in line with experiences around the country in terms of imposing this, because I think to compare Philadelphia where we're going to have 40 percent increases in taxes and 200 percent increases in the cost of goods or a 200 percent increase in the overall business taxes for a particular industry, I would say it's fair to say that we don't have the data to know what the impact will be on that industry to make those kind of huge changes with respect to that industry. Would you say that that's fair?
I'm going to just reiterate back what I heard, which is that if we don't talk about this as a tax 190 3/17/10 - WHOLE - BILL 100118, etc. to generate revenue and we talk of it as a tax only about obesity, based on the national information that we have on the impact of price on caloric intake, this tax would be in line with the amount of increase in price that's necessary to have an impact on obesity. So to answer your question, I believe that there are two purposes to the tax. From a revenue point of view, including the amount that's in Chicago wouldn't get us to our revenue goal, and from an obesity point of view, having the tax at the level of Chicago wouldn't get us from a health point of view to our obesity goal.
Sure, but there's never the -- I guess what I'm suggesting is the information Rudd has about the likely effects of such large increases -- and most of their information has to do with excise taxes, which we're not able to do. So that there's so many missing data points that 191 3/17/10 - WHOLE - BILL 100118, etc. we don't -- isn't it fair to say that we don't know what impact a 200 percent increase in business taxes on one industry will have in terms of spill-off effects, other jobs? I mean, I can tell you from practical -- somebody is going to go to Costco in Delaware County and that's what's going to be sold in corner stores in neighborhoods throughout the City of Philadelphia, and they'll charge a bit more and none of it is going to end up in the City's pockets, because they will have paid cash in Costco in Delaware County and they'll be selling for cash in the corner store. As a practical matter, those sort of effects, it's not clear to me that we've considered all that stuff in terms of what the actual impact even on obesity is, because we're doing something that nobody has ever done and we're doing it not incrementally, but boom.
It is correct 192 3/17/10 - WHOLE - BILL 100118, etc. it's a boom, and I have to say that based on what is, I would call, emerging agreement in the literature and by others who do public health around the country, the magnitude of increase that's required to assure some reduction in caloric intake that's meaningful is of the magnitude we're talking. However, I want to answer your question directly, and, that is, has anyone done this before in this way, and the answer is no. 13
So what are they basing the data on that says this is the right number? I mean, and have they taken into account the effect on a particular industry? Because all the research that you're talking about that's national focuses on an excise tax. So it's at the point of sale that the person pays the additional tax, and what we're talking about is a tax that's paid by businesses, not by the consumer.
I'm not aware that all the literature has focused on 193 3/17/10 - WHOLE - BILL 100118, etc. excise tax. The literature in public health at least has focused on the impact of price on consumption.
But price assumes -- the implication of price being the measure is that the cost is passed on to the consumer.
Which means essentially the only way to enforce that is a sales tax or an excise tax. So it's clear that nobody has looked at the impact --
-- other than with respect to price. Can we agree on that?
You have the same issue, remember. So an excise tax is levied at the point of distribution. If 194 3/17/10 - WHOLE - BILL 100118, etc. it's levied at the point of distribution, it increases the cost to the retailer. There is no guarantee that a retailer passes anything on.
So however we do it in this way, other than a specific sales tax to the consumer, has the same implicit issue, I will acknowledge and say to you. I think the question becomes does the prudent retailer pass it on or not, and does he or she pass it on to some extent. I believe that a prudent retailer could say, If I'm taxed by ounce and it at the moment costs the same for a two-liter and a 20-ounce container, I might sell more 20-ounce containers or I might sell more beverages which aren't sugar-sweetened, because that would reduce my tax, which is different than the business privilege tax where the business privilege tax is on what you sell. Here it's a specific category that 195 3/17/10 - WHOLE - BILL 100118, etc. we're talking about, and changing sales of that category can reduce the given retailer's tax.
So partnership around passing the tax on and doing it in a prudent way is what we would propose to do.
Research looking across the country suggests if price to the consumer goes up, there's a decrease in consumption. What we're talking about is figuring out ways to assure or help retailers understand that passing that cost on to the consumer for sugar-sweetened beverages would be a benefit to them and a benefit to obesity in Philadelphia.
So with respect to the obesity rather than the tax and revenue side of this, the 196 3/17/10 - WHOLE - BILL 100118, etc. research demonstrates that a price of this is going to have the effects that you displayed, right?
Okay. Is there any research with respect to the impact on an industry of a 200 percent tax increase?
So we know about tobacco where tobacco taxes have been increased dramatically in various jurisdictions over time.
That is a price increase of the tobacco. That is not something that is taxed to the industry. We're talking about increasing retail and wholesale taxes by 200 percent. Now, whether or not they pass them on gets to the obesity point you are making, and I do not dispute that. I assume that that's pure research, and I'm 197 3/17/10 - WHOLE - BILL 100118, etc. going to trust you. I'm talking about the impact on the business. And a cigarette tax is not charged to the retailers directly. It is passed on to the consumer and is passed on to the federal government.
Right. So what I hear the Administration saying -- and this is an important part of a general discussion about business privilege taxes -- is that low-margin industries, if you increase -- and we can all acknowledge that retail is very low margin. If you increase their business privilege taxes, they are going to pass it on to the consumer and keep their profits about the same, if they can.
And that is the Administration's position with respect to that issue.
I'm not sure I understand the question, if there's a question.
Well, let me rephrase the question. So there's $77 million of increased business privilege taxes that is focused on one industry. So I'm taking off the obesity hat and I'm putting on the tax and revenue need hat. Wouldn't it be fairer to tax all industries in the City equally to raise the revenue we need to support City services as opposed to focusing on one industry given -- (Applause.)
I'm not 199 3/17/10 - WHOLE - BILL 100118, etc. finished my question.
-- (continued) given that we don't know the impact of putting the tax only on one industry and there is no research about that?
So I'll say two things. One is, I think we just agreed that when the cost is increased to retailers, that they pass it on to consumers, which if passed on to sugar-sweetened beverages would make a difference to obesity. So I want to reiterate that. We agreed to.
That's a big assumption. It may not be sugar-sweetened beverages. It could be everything in the store.
Fair enough. The second piece that I would say is that obesity is not fair, so if we look at the poor in Philadelphia --
My question 200 3/17/10 - WHOLE - BILL 100118, etc. was about the tax. We agreed on obesity.
-- who are the people who are paying the cost, which could be called an externality, of consumption of sugar-sweetened beverages, remember that the poor highly disproportionately in Philadelphia are impacted by that disease and their life expectancy is reduced because of the disease.
I'm not disputing that. I'm having a policy discussion about tax policy with respect to businesses.
Okay. So I've said let's assume everything you're saying about obesity is correct. So I'd like you to deal with the tax question I'm asking.
And I believe that the issue is passing on to consumers the cost of the tax so that the price 201 3/17/10 - WHOLE - BILL 100118, etc. goes up.
And you don't think it's fairer to levy an increase of $77 million on taxes, taking obesity off the table, across all businesses in the City versus the retail and wholesale industry?
So we tax, as I understand it, a number of different items. At the moment, remember, we don't tax sugar-sweetened beverages. They're excluded from the sales tax. So we don't tax milk. It's excluded from the sales tax. We don't tax a whole bunch of things. We don't tax clothing. So there are a number of decisions that are made. We do tax tobacco and we do tax gasoline. So I think the question becomes the compelling, for me at least as Health Commissioner, the compelling public good.
Well, could Mr. Agostini answer my question about taxes, then?
I think the 202 3/17/10 - WHOLE - BILL 100118, etc. doctor did.
I believe the doctor answered the question the same way I would answer the question.
So you don't think it's fairer to impose the tax, just from a tax perspective, to impose a tax generally across all businesses rather than focus on one industry, and you don't think that a 200 percent increase in a tax on an industry, Mr. Agostini, will have a negative impact on that industry?
As I said twice before, it really will depend on the substitution effects.
Standard economic concept: One item is a higher price either through tax or through the pricing. People either decide not to purchase that or they purchase a substitute item. 203 3/17/10 - WHOLE - BILL 100118, etc.
That deals with the retail consumer. That doesn't deal with the business that has to pay the tax, and you're not anticipating a lot of substitution because you have in your budget the tax for the next five years. So I don't understand that answer.
Well, I'm sorry you don't understand that, but that really will drive -- if people move to water and if you look at the industry's own publications like beverage year 2009, the growth in water, the growth in diet teas, the growth in those items has helped to forestall what would have been an even deeper drop in consumption because of the recession. So it really will depend on what people do when they are faced with an item that costs a little more. Will they stop purchasing a beverage entirely or will they move to a different beverage, many of which will be bottled 204 3/17/10 - WHOLE - BILL 100118, etc. by and sold by the same industry.
Once again, the question is not about the impact on the end consumer. It's about the impact on the business. And we keep getting into this conversation about whether or not the end consumer is going to substitute when we are predicting $77 million in business privilege taxes. So we know there will not be substitution to the extent of $77 million at least, plus a CPI. My question is, what is the impact of that $77 million tax on the retail and wholesale industry? Not on the behavior of consumers, and we know there's not substitution with respect to that $77 million, because it's in the budget. That's the question.
So if it's passed on to consumers, I think -- I don't know, but I believe --
Doctor, really with respect, I'd like the Budget Director to answer this question. 205 3/17/10 - WHOLE - BILL 100118, etc.
I'd like the conversation to be about the tax on industry, which I don't believe is the doctor's expertise, but I do believe you have expertise in this area, Mr. Agostini.
Councilmember, I've provided an answer. I think we just disagree.
Well, you said substitution is the key, and we know there won't be substitution with respect to 77 million. So the question is, with respect to that $77 million, what is the impact on the retail and wholesale trade? Because there's not substitution with respect to it. It's in the budget.
But as you've just said, if there's an assumption of $77 million, it then suggests that it has been passed on to the consumer and, therefore, there will be no loss of jobs, 206 3/17/10 - WHOLE - BILL 100118, etc. because the individuals will be paying that and the bottling and all of those activities will continue. To the extent that there is a migration -- again, the substitution effect -- to some other beverage and perhaps in larger numbers, it's conceivable you will have increases. But I think to your point, you cannot look at and cannot understand the underlying impacts on the industry without understanding what the underlying impacts and actions of the consumer, because that's, in essence, what will determine supply and demand.
Sure, but we know that there's not substitution with respect to 77 million. What you're saying is, we don't know what the impact on the industry is going to be.
Actually, I'm totally confused by what you're trying to -- I really am confused at what you're trying to get at. 207 3/17/10 - WHOLE - BILL 100118, etc.
It looks to me like we looked a lot at the obesity factor, but we didn't spend much time doing research on the effect on the retail and wholesale industry. And I think the implication or suggestion of your answers is that that supposition is correct.
The Chair recognizes Councilman Rizzo for a point of information.
Yeah. I'll wait for my point of information until this issue is resolved here. Or maybe I should jump in now.
I have a question for the doctor. You've been with the City how long now?
A little over two years. 208 3/17/10 - WHOLE - BILL 100118, etc.
When did you first -- I'm just curious, would you have floated this idea if we weren't having these financial difficulties? Because I never heard a word out of you until recently about a soda tax. (Applause.)
So I'm curious whether the Budget Director and the budget team brought this idea to the table or sincerely was this ever in any proposal before today to do this?
I actually am happy to share with you the proposal that was submitted in October before this, something that's been talked about not just here but nationally, and it is something that if you look at the public health community, it's something that the public health community supports strongly, as I think there'll be people 209 3/17/10 - WHOLE - BILL 100118, etc. who will talk about later today.
If I didn't know you, I wouldn't believe your answer, but I respect your -- because I've never -- until this was kind of leaked in a meeting many, many months ago, I kind of thought it was a joke, and I wasn't sure that it was really a sincere revenue producer. Many people have talked to me, say, Look, if you want to tax sodas, just tell us you want to tax sodas. Don't spin the part about the health, because people ask me why didn't you tax ice cream, things, you know, trying to be funny. But I believe you if that's your answer.
Thank you, Madam President. The public is here to 210 3/17/10 - WHOLE - BILL 100118, etc. testify and I'm going to wrap up. I'll have additional opportunity during the different departmental hearings to get into some of these issues. I would like to request whatever analysis was done with respect to the impact on the retail and wholesale industry of a 200 percent tax increase be provided to the Chair expeditiously.
Thank you. And please remain. Our first witness? MR. McPHERSON: Gary Foster. (Witness approached witness table.)
Good afternoon, Mr. Foster. Please identify yourself for the record and proceed with your testimony.
Hi. My name is Gary Foster. I'm a Professor of Medicine and Public Health at Temple University and direct the Center for Obesity 211 3/17/10 - WHOLE - BILL 100118, etc. Research and Education there. First, thank you for the opportunity to discuss the most serious and prevalent public health problem in this city and in this country and on this globe. As you're well aware, the rates of childhood obesity have tripled over the last years, and as a result, many 10 medical conditions which were frequently 11 seen in adulthood are now seen in 12 childhood. In addition, obesity also 13 confers significant psychosocial and 14 behavioral consequences such as stigma, 15 bullying, discrimination, increased 16 absenteeism and poor academic 17 performance, and much of this data has 18 been collected in the City of 19 Philadelphia. 20 Finally, and I think importantly in this context, the economic toll of having children develop adult diseases in their teens and to develop the complications of those consequences in their 20's, 30's and 40's, that 212 3/17/10 - WHOLE - BILL 100118, etc. economic toll cannot be understated. It's led some to say the staggering possibility that we're living in the first generation in which parents may actually outlive their children. My colleagues and I have been doing research on obesity in schools and community settings in Philadelphia over the last years, ranging from Northeast 11 Philadelphia to North Philadelphia. The 12 bad news from a study of ours published 13 in Pediatrics in 2008 revealed that 17 14 percent of 4th to 6th graders in 15 Philadelphia were overweight and an 16 astounding 25 percent are obese. These 17 are not children presenting at a medical 18 clinic. These are kids who are simply 19 going to school. 20 Our study further showed that 21 if we do nothing, 14 percent of children 22 who were not overweight in 4th to 6th 23 grade will in fact be overweight just two 24 years later. 25 The good news is that a school 213 3/17/10 - WHOLE - BILL 100118, etc. nutrition policy initiative, which was tested in that study and included removing sugar-sweetened beverages from schools, was able to reduce the number of children who became overweight by 50 percent. But even in the presence of this effective school-based intervention, seven percent of children still became overweight in a two-year period. There's no doubt that schools are an important environment to change in terms of energy and activity, but they're not the only potential help for the children of this city. Children are often faced with environments that make healthy eating and physical activity quite problematic. 07. 07, they walked out the door with 360 calories. The most 214 3/17/10 - WHOLE - BILL 100118, etc. frequent beverage consumed were sugar-sweetened beverages. The most frequent foods consumed were chips and candy. What can be done? Clearly, there's no single solution to a complex and serious problem like childhood obesity. There are several things that have already been done, with Council's leadership, that I think we should applaud. One is a food and beverage policy from the School District of Philadelphia that sets criteria for healthy beverages, including eliminating sugar-sweetened beverages from school. The second is that City Council has made nutritional information more easily accessible on menus at the time of purchase. In times of financial difficulty, the prevention and management of childhood obesity can seem like a luxury. I can assure you that if we don't pay to prevent and manage obesity 215 3/17/10 - WHOLE - BILL 100118, etc. right now, we will pay for it in future healthcare costs and diminished productivity of our citizens. Fortunately, Philly has taken a leadership position on this issue, as recognized by the CDC, the First Lady, the Secretary of Agriculture and the Secretary of Treasury on their recent visit. To maintain our leadership position, we must push ahead with new funding and new initiatives.
We're making a dent, but it's a small one, and we need to be aggressive. You'll likely hear many reasons not to act on a sugar-sweetened beverage tax, including the loss of jobs and the uncertain state of the science. Regarding jobs, every job in Philadelphia is important, especially in these times. It is unclear to me, however, that a policy that would reduce but not eliminate sugar-sweetened beverages would have an effect on jobs. Just last week, the American 216 3/17/10 - WHOLE - BILL 100118, etc. Beverage Association reported, quote, that since the first half of 2004-2005 school year and the 2009-2010 school year, there has been an 88 percent decrease in total beverage calories shipped to schools in America. In addition, the School District of Philadelphia instituted a beverage policy in 2004 that eliminated sugar-sweetened beverages from schools. These policies that prohibited sugar-sweetened beverages apparently resulted in no loss of jobs in Philadelphia plants. Just this morning, phone calls to two major local bottlers revealed that they were both actively hiring. If a policy that eliminated sugar-sweetened beverages had no effect on jobs, it's hard to imagine, at least for me, that a policy that provides incentives for small reductions in sugar-sweetened beverages would result in job loss. It's also, I think, important 217 3/17/10 - WHOLE - BILL 100118, etc. to note that most companies that make and distribute sugar-sweetened beverages have been around for decades, some for greater than a century, a testament to their ability to swiftly respond to market forces and consumer demands. If indeed the tax does change the purchase pattern of sugar-sweetened beverages, rest assured that companies will develop new products and/or market already existing ones they have that are not sugar-sweetened. They always do. That is why they are indeed very successful businesses. Regarding the science, it can be argued that studies to date are equivocal about the role of sugar-sweetened beverages on obesity, and as an academic, I can appreciate the exercise of dissecting study after study, but I don't think that leads to any improvement in the public health. The facts are remarkably simple. Obesity results from excess intake relative to 218 3/17/10 - WHOLE - BILL 100118, etc. expenditure. Any reduction in calories would make a difference. This is not about demonizing sugar-sweetened beverages. It's about targeting beverages that bring nothing to the table nutritionally. Focusing on beverage also makes the messaging, especially for kids, more direct and straightforward, rather than prescribing a long list of dietary prescriptions that families and kids have to adhere to, prescribing a very straight message that's clear: Drink fewer sugar-sweetened beverages. It's a simple and achievable message. I would argue that for decades the government has been telling children and their families what to eat and offering no help to do so. This is an opportunity to make a healthier choice easier, especially in the City of Philadelphia where obesity is disproportionately present among people for whom price is the number one 219 3/17/10 - WHOLE - BILL 100118, etc. consideration when they buy a product. )
In summary, I encourage Council to support a sugar-sweetened beverage tax. No tax will be met with great popular appeal, but this one is different. Not only does it bring revenue to a fiscally trouble city, it provides crucial funds for obesity prevention in this city and provides incentives for Philadelphians to choose drinks that are not packed with sugar and calories. Thank you very much. (Applause.)
Our next witness? MR. McPHERSON: Our next witness is Joel Naroff.
Thank you very much. We appreciate your testimony. (Witness approached witness table.) 220 3/17/10 - WHOLE - BILL 100118, etc.
Good afternoon. Welcome. Kindly identify yourself for the record.
I'm Joel Naroff. I'm the President of Naroff Economic Advisors. For the past years, I have 8 been an economist at several of the 9 largest banks in the region where I was 10 responsible for all national and regional 11 economic analyses. I have been a 12 consultant to a variety of businesses and 13 governments, including the City of 14 Philadelphia, on economic and financial 15 issues. 16 Thank you for the opportunity 17 to discuss my views on the potential 18 impact of the sugared beverage tax on the 19 City of Philadelphia. I will be limiting 20 my comments to the issues of tax 21 revenues, tax avoidance and the potential 22 differential impact of the tax on 23 individuals and businesses. I will not 24 be taking a stand on the health 25 implications of taxing sugar products. 221 3/17/10 - WHOLE - BILL 100118, etc. Let me clearly state up front I am skeptical about the ability to meet the two competing but inconsistent goals of this tax proposal. If the tax is to raise significant amounts of revenue, there must be continued demand for sugared beverages. For the second goal of reducing sugar-related health issues to be met, there must be a significant reduction in demand. That would limit the expected tax windfall. In other words, you can have your tax revenues, but you have to eat your sugar, too. The overarching factor that must be considered as you evaluate the efficacy of instituting this tax is that the resulting price increase may not be modest or marginal, as economists call it. It is likely to be large. For those who purchase beverages for home consumption, the tax has the potential to roughly double the price of a typical six- or 12-pack of canned drinks. Larger sized products could face even greater 222 3/17/10 - WHOLE - BILL 100118, etc. increases. Drinks at restaurants will have differing price changes depending on the price already charged, but it is clear that the less expensive the restaurant, the greater the potential price increase. Substantial price increases create significant movements along the demand curve. People often employ extreme efforts to avoid those changes. Unfortunately, those actions may manifest themselves in unexpected and negative ways as the large price change will affect the various segments of the market differently. The greatest negative impacts are the result of the typical edge effect of creating sharp geographic price differentials. For those who can readily purchase beverages outside the City, the price gap in beverages alone could induce changes in shopping locations. The mobile population can avoid the tax and still consume the product. The City's 223 3/17/10 - WHOLE - BILL 100118, etc. potential tax revenues are reduced greatly without cutting sugared beverage demand. The deflection of food service demand means City-based businesses lose once again to suburban competitors. Thin-margin food stores would be at greatest risk. They would face an unenviable choice: Raise prices just on sugar beverages, share the price increases across all beverages and/or eat some of the tax increases. All but the "eat the tax" choice would create competitive disadvantages with non-City stores. The "eat the tax" option would likely be the worst choice. It reduces earnings for stores already financially stressed. Job losses are inevitable, but in possibly unexpected places. Undoubtedly, smaller stores would be hurt, but they might not be alone. Some supermarket chains are having significant profitability 224 3/17/10 - WHOLE - BILL 100118, etc. problems. The tax would reduce local store earnings, not simply because they would absorb some of the tax increase or sell fewer soft drinks, but people choosing suburban markets would do all their shopping there. Reduced demand could create incentives to shut stores that were already financially questionable. The possibility of some communities losing a major food provider is real.
Job losses and reduced competitiveness is not what the City is hoping for with this tax, but it is a likely outcome. And to the extent that there are fewer jobs and businesses, the other tax revenues are reduced, offsetting some of the beverage tax gains. For those with restricted mobility, tax avoidance is limited. Their choice is clear: Pay the higher price or switch. Since the poor and elderly tend to fall into this category, 225 3/17/10 - WHOLE - BILL 100118, etc. they are the ones most impacted, making the tax regressive. These people will likely reduce their usage of sugared beverages, but are they the people you want to impose the greatest cost on? Collection and enforcement could become a major issue as well. This tax would require additional paperwork for all businesses that sell the product. Tracking and accurately reporting sales levels adds to the cost of doing business. For larger companies, that might not be a major issue, but for smaller businesses, it is another nuisance that makes it difficult to operate in the City. And let's not forget the potential for an underground market that would further pressure smaller stores in poorer communities and would raise the question of how would you enforce the tax. Finally, there is the issue of image. It's hard to argue that recreational use of sugared beverages is 226 3/17/10 - WHOLE - BILL 100118, etc. an evil that must be taxed out of existence. If, as I suspect, revenues will be disappointing, questions will grow about what the City will do next to raise revenues, and that affects the perception of the City's business friendliness. So let me summarize my view on this tax. Potentially large changes in prices are likely to have unintended consequences, triggered by short- and long-term avoidance actions. It will fall disproportionately on the poor and the elderly, who are least able to avoid the higher prices. It will reduce demand for local food-service businesses, leading to the closing or cutback of not only smaller corner stores or restaurants but also potentially larger chain stores. Declining business causes job losses that would further burden City services and reduce other tax revenues. It will create additional paperwork for smaller businesses. It cannot help the City's 227 3/17/10 - WHOLE - BILL 100118, etc. attempts to improve its image as a business-friendly location. Given all these negative effects, it is questionable how much revenue will be ultimately raised. You are likely to be disappointed. I understand clearly the difficult financial situation the City is in, and I applaud the imaginative attempts to deal with the problems. Unfortunately, this tax will not likely raise all the desired revenues, but will create pain for those individuals and businesses least capable of affording the negative impacts. I hope you search for alternative means to close the budget gap you are facing. Thank you for your time.
Thank you. We appreciate your patience and coming in to testify. (Applause.)
The next witness? 228 3/17/10 - WHOLE - BILL 100118, etc. MR. McPHERSON: Our next witness is Danny Grace. (Applause.) MR. McPHERSON: Councilman Green has a question. Mr. Naroff?
Mr. Naroff, would you please approach the witness table. Councilman Green has a question. (Witness approached witness table.)
Thank you. Mr. Naroff, I know we're talking about sort of -- your reputation is well known to, I'm sure, all of us on Council. I asked people from the Administration a simple question, not having to do with the social benefits of the tax but having to do with the impact on a particular industry, and I just wondered if you might have an answer to the question I asked them, and, that is, current business taxes citywide for the retail 229 3/17/10 - WHOLE - BILL 100118, etc. and wholesale trade are $47 million, or were in 2007. We're talking about basically a 200 percent increase in a tax on one particular industry. What would you normally, in an economic model, expect to be the impact on that industry as a result of a 200 percent increase in taxes on them?
Well, I think the issue is not simply one of limiting it to an analysis of that specific industry, because you've got to look at the consumer's budget. Essentially, if $77 million is raised, we have to know who it's raised from and whether or not they will simply expand their expenditures and cut back their savings or substitute the higher-cost sugared product for other products, and as a result of that, they may cut back on other food products; therefore, affecting the food service industry, and/or cut back purchases of other goods and services within the City, as they cannot afford to purchase as many 230 3/17/10 - WHOLE - BILL 100118, etc. goods if they're paying $77 million more in taxes. So the impacts wouldn't be limited, I believe, strictly to the food-service industry, retail industry, although they would probably feel a significant share of it, but it would be spread across a wide variety of industries and probably largely in the City.
So what you're suggesting is, it would take $77 million or actually $90 million or some figure out of the economy in the private sector and move it to the public sector.
It would take probably less than 77 million, because there would probably be some savings that would be used that go into it, but probably a small amount of the savings would be going into it. It would take $77 million of demand for other goods and services out of the public -- out of the private sector, or share of that 77 231 3/17/10 - WHOLE - BILL 100118, etc. million, and put it into the public sector, yes.
Thank you very much. Any other comments or questions from members of the Committee? (No response.)
Mr. Grace, thank you for your patience. Please identify yourself for the record.
Good afternoon, Madam President. My name is Daniel Grace. I'm Secretary/Treasurer of Teamsters Local 830 here in Philadelphia.
The soda tax will cut jobs, not waistlines. Why? The soda tax is the wrong way to fight obesity. Background: In an economic downturn, the government looks for additional revenue in order to balance budgets. Mayor Nutter is proposing a 232 3/17/10 - WHOLE - BILL 100118, etc. two-cent-per-ounce tax on all sugar-sweetened drinks in order to pass a $3.9 billion budget by May 31st, 2010. The Teamsters position: The soda tax is an impractical and shortsighted policy decision that will succeed only in cutting jobs, not in cutting obesity rates. It will disproportionately hurt hard-working middle-class families and the working poor of this city. If Mayor Nutter is serious about improving citizens' overall health, then only a robust education program aimed at targeting eating behaviors and promoting fitness and a healthy diet can effectively combat the country's obesity epidemic. Virtually any food or drink consumed without moderation will cause weight gain. The soda tax is discriminatory. Taxing one product and one industry to the exclusion of numerous items containing similar sugar-based ingredients is simply unfair. The tax 233 3/17/10 - WHOLE - BILL 100118, etc. would not be imposed on snack items such as ice cream, candy, popsicles, doughnuts or other high-sugar foods. Instead, this tax would only unjustly target and burden the beverage industry alone. Mayor Nutter would only use $20 million of the 77 million raised annually through this tax for public health education and services. Let's be honest here. The initiative is not about health. It is about deficit reduction and raising taxes on the Philadelphians who are already burdened with -- (Applause.)
-- among the highest taxation rates in the country. It is not designed to help curb childhood obesity. Jobs: The beverage industry statistics show that when soda price is raised ten percent, sales drop eight to nine percent. Reduction in soda sales means job losses from bottling plant workers to Teamster Union delivery 234 3/17/10 - WHOLE - BILL 100118, etc. drivers. Our best estimate at this point in time is potentially as many as 2,000 lost regional jobs if this tax is passed. Yet, these job losses will not be limited to Teamster members alone. Supermarket employees, convenience store workers and small business owners who sell soda in their stores or restaurants will also be adversely affected if this onerous tax is passed into law. There are thousands of family-sustaining middle-class Philadelphia jobs in beverage production, supply, distribution, sales and retailing, all of which depend on a healthy beverage industry. The loss of any of these jobs will only further erode the City's tax base. Teamsters Local Union 830 represents 2,200 Philadelphia members in the soft drink and beverage industry. These hard-working, tax-paying City residents do not deserve to have their jobs placed in jeopardy because of a misguided attempt to fill the City's 235 3/17/10 - WHOLE - BILL 100118, etc. coffers solely by taxing the product they produce and deliver. The Teamsters Union is actively involved in the fight against obesity. We actively participate in prevention and wellness programs in connection with our health and welfare plans. To help educate children and provide them with nutritious beverage options, we support the industry effort to establish school beverage guidelines that remove full-calorie soft drinks from all schools and provide students with a range of lower-calorie, smaller-portion beverage options. This must be a part of a broader effort to teach children the importance of a balanced diet and exercise. I respectfully ask the members of City Council to vote against this soda tax. It will make an additional financial burden on the families already struggling to make ends meet. It does not work for Philadelphia or for 236 3/17/10 - WHOLE - BILL 100118, etc. Philadelphia workers. Thank you.
Our next witness? MR. McPHERSON: Dr. Robert Berkowitz.
And I believe after Dr. Berkowitz we have Girard College students. We see them sitting on the side. Are you going to be testifying? (Yes.)
Perhaps you could come up here so we would save some time. (Witness approached witness table.)
Doctor, welcome. Kindly identify yourself for the record.
Good afternoon, 237 3/17/10 - WHOLE - BILL 100118, etc. Madam President. Thanks for the opportunity to speak with you. I'm Dr. Robert Berkowitz, Associate Professor of Psychiatry in Pediatrics from the University of Pennsylvania and the Children's Hospital of Philadelphia where I've been Senior Medical Director of the Center for Weight and Eating Disorders program and a steering committee member of CHOP's Healthy Weight program. I'm involved in the treatment of youth and adults with obesity and find it important -- who find it important to reduce sugar-sweetened beverages as part of their treatment. As you all know, we're in the midst of a serious epidemic of obesity in children and adults, and obesity, including obesity in children and adolescents, is associated with very serious medical problems. To name just a few, Type 2 diabetes, risk of heart attacks, heart disease and stroke, high blood pressure, cholesterol problems, 238 3/17/10 - WHOLE - BILL 100118, etc. sleep apnea, depression, problems of self-esteem and bone disease, that all affect the health and quality of life of all people, especially our youth. Sugar-sweetened soft drink consumption is associated with obesity and its development and these other serious illnesses. A number of studies have shown that the more a child consumes sugar-sweetened beverages, the more likely the child is to become obese. A 2005 study by the Center for Science in the Public Interest found that the average teenage boy consumes on average three cans of sugar-sweetened soft drinks a day, and the average teenage girl consumes two cans of sugar-sweetened soft drink a day. If we were able just to cut down by one 12-ounce 145-calorie can of sugar-sweetened soda a day, a child may be able to lose a pound a month or not gain that pound a month. If we were able to cut down by one 20-ounce, 240-calorie sugar-sweetened soda, a child or 239 3/17/10 - WHOLE - BILL 100118, etc. adolescent may be able to lose up to two pounds a month or not gain that weight. A very important part of our treatment for patients with obesity is to reduce consumption of sugar-sweetened soft drinks. Recently, I had a teenage patient in our clinic. This patient not only was overweight but had high blood pressure, high cholesterol and poor self-esteem. The patient was able, with intervention, to lose 40 pounds and keep it off for more than a year at this point. The patient still went to his favorite fast food restaurant, but replaced the Big Gulp type regular soda with water, still had his burger, was successful losing weight. His self-esteem improved. His cholesterol improved. His blood pressure was better. His overall quality of life was better. These are the kinds of efforts to assist youth in consuming less-sweetened beverages that will make 240 3/17/10 - WHOLE - BILL 100118, etc. them healthier. It is important for us to continue to communicate to the public that sugar-sweetened soda and other sugar-sweetened drinks have no 7 nutritional benefit whatsoever to children and adults. In fact, they cause harm when consumed in excess. People develop obesity with other very serious diseases associated with obesity, like Type 2 diabetes, problems with high cholesterol, high blood pressure and heart disease and strokes, also sleep apnea and bone problems. Obesity may be prevented by replacing sugar-sweetened beverages with unsweetened drinks such as water, unsweetened beverages or low-fat milk. It is important to help people consume fewer sugar-sweetened beverages. It is important for the City of Philadelphia to join with us at the Children's Hospital and other health organizations in the City to promote the 241 3/17/10 - WHOLE - BILL 100118, etc. wellbeing and health of children and adults and to continue their public health important services for its citizens. Thank you very much.
Thank you very much, Doctor. Students from Girard College, please approach the witness table. (Witnesses approached witness table.)
Please identify yourself for the record and proceed with your testimony. MISS POWELL: Hello. My name is Lena Powell. I'm a junior at Girard College. MISS COLAWA: Hi. My name is Olene Colawa (ph) and I'm also a junior at Girard College. MISS BAKER: And I'm Imani 242 3/17/10 - WHOLE - BILL 100118, etc. Deans-Baker and I also attend Girard College but I'm in the 8th grade.
Thank you. Are you going to testify? Proceed with your testimony. MISS POWELL: First, although he is not here, we still want to thank Michael Nutter for giving us this opportunity to speak to address some of our concerns and to also give some reasons as to why we support the soda tax. As was already stated, the Mayor proposed the soda tax, which is also called the Philadelphia Healthy Initiative, and its aim, which is already stated, is to raise $77 million for the City, in addition to trying to reduce the obesity rate within children in Philadelphia. The reason why we support the soda tax is because we feel as though this will be the first step for our ultimate goal, which would be to tax 243 3/17/10 - WHOLE - BILL 100118, etc. plastic bottled water. We feel as though by taxing soda bottles, this will dissuade consumers from purchasing plastic and -- you know, that's basically it.
Thank you. MISS COLAWA: Good afternoon again. In addition to what Lena just said, I think it is very important for us to seriously consider -- well, for you guys to seriously consider supporting this tax, because it's going to be a very good initiative, because I know that there are other states who have already taken the initiative to start this program. And obesity is not only a serious problem in Philadelphia, but all across the nation, and I think it is very important for us to seriously think about the future of Philadelphia. I mean, the students who are going to school who are obese right now are going to be the future leaders of Philadelphia, and if 244 3/17/10 - WHOLE - BILL 100118, etc. their current health isn't where it needs to be, I seriously doubt that the intellectual room will be where it needs to be. So I think not only will this help the City with raising money, but it will also help to bring things into perspective and think about the future and not just the now.
Thank you. MISS BAKER: Good afternoon. I'm Imani Baker from Girard College and I'm in 8th grade. Today, I'm here to inform you about several states that already took an initiative to tax not only sweetened drinks, but all plastic bottled drinks. States such as New York, Iowa and California are taxing all kinds of beverages just to sustain the healthcare of their citizens. They charge five cents to be brung in and recycle. So not much people are doing it. Only 12 245 3/17/10 - WHOLE - BILL 100118, etc. percent have been seen bringing in -- I mean returning bottles to be recycled, and that's a very low percentage. And in Philadelphia, this is big for Philadelphia if we were to do this, because this is a city that has been looked upon as in for passing things that influences other states. So in Delaware, Governor Jack Markell saved the Bottle Bill and now helps the cost of -- well, to pay for the taxes are called curbside recycling. Well, only 12 percent of the bottles that are being recycled is very low. Though it isn't much, only a tax-sweetened drink, but you got to start somewhere to make a difference. MISS COLAWA: In addition to what Imani said, I'd like to add that those states that already passed the Bottle Bill, they don't have -- there hasn't been any report of them having people lose a lot of jobs, because a lot of people still have their job. Of 246 3/17/10 - WHOLE - BILL 100118, etc. course, we're in the recession right now. We're in an economic recession right now, so there are going to be issues, but they don't have such the drastic issues that practically all of the people who live in those states don't have a job. People are still working despite the bill.
Thank you. Do you simply want to introduce your friends there. (Witnesses approached witness table.)
Please identify yourself for the record and proceed with your testimony. MISS FOX: Hello. My name is Tamashi Fox and I'm in 7th grade and I attend the school Girard College. MISS SONY: Hi. My name is Genesis Sony and I also attend Girard College and I am also in the 7th grade.
Thank you. 247 3/17/10 - WHOLE - BILL 100118, etc. MISS FOX: I am here to say that I fully support the tax on plastic bottled beverages, because when you...
Go ahead, dear. MISS FOX: I'm kind of nervous. To have tax on the bottles, I want less people to buy them, because when people buy them, it is hurting our environment and they're just wasting the bottles. And to use the tap water and you're buying the bottled drinks, then you're just paying twice as much money as you would just to use the tap water.
Thank you. MISS SONY: I'm here to explain to you why I fully support the tax on soda bottles also. Soda bottles and regular water bottles are being wasted, so the reason why we think that they should put a tax on water bottles is because even though they're being recycled throughout the world, most 248 3/17/10 - WHOLE - BILL 100118, etc. plastics are non-biodegradable. So that means that they can't be broken down. And we found that the tap water has been -- is clean and we found that there's fluorine found inside. So we think that it will be better if we could drink tap water instead of buying bottled water, so it will save money both ways. That's it.
Thank you very much. The Chair recognizes Councilman Jones.
Madam President, democracy is often a theatre for competing ideas, and everybody, young lady, does not agree necessarily with your opinion, but everybody in here has to agree that you presented yourselves well, and for that, let's give them a round of applause. (Applause.)
And to our folks there that have a contrary view, I 249 3/17/10 - WHOLE - BILL 100118, etc. want to give you a round of applause for showing them that you can express these things in a forum and not be heckled or anything like that. I was very proud of you. I was listening for it. So I'm going to give you a round of applause, too. (Applause.)
Thank you. Thank you all very much. We appreciate your coming in. (Applause.)
Dave McCorkle, is he here? (Witness approached witness table.)
Are you offering us a drink; is that the idea? MR. McCORKLE: Pardon me, Council President? 250 3/17/10 - WHOLE - BILL 100118, etc.
I said are you offering us a class of Coke? MR. McCORKLE: You know, actually we're not going to specify the beverage. I bought it today at Wawa because it was a buy-one-get-one-free, so it kind of represents what I'm going to present to you today. And the other beverage is a dairy product. It's a flavored chocolate milk. As you probably know, the dairy industry in Pennsylvania is quite large, sells about $3 billion worth of dairy products a year around the region and is a growing segment of our agricultural economy. And the proposed sugar-sweetened tax in Philadelphia, business privilege tax, would affect both of these products. I'll try to outline how. My name is David McCorkle. I'm the President of the Pennsylvania Food Merchants Association and the Pennsylvania Convenience Store. Council President Verna, I want to thank you for 251 3/17/10 - WHOLE - BILL 100118, etc. allowing me an opportunity and allowing others an opportunity to speak against the sugar-sweetened beverage tax in Philadelphia. I represent an organization that's statewide. We have about 1,100 corporate members in Pennsylvania. They operate about 6,000 convenience stores, corner grocery stores and supermarkets, and you know our members in Philadelphia. They have stores in your districts. They've worked closely with you. They are the hub of the wheel in the communities, and that's been more and more important in the last ten years than ever. I'd like to start offering thanks to all City Council members who are here today. I thought your discussion this morning was excellent. I'd also like to thank the Mayor's staff, who met with me and with others from the beverage and food retailing industry and from Teamsters Local 830, to express our 252 3/17/10 - WHOLE - BILL 100118, etc. concerns about this proposal. We had met with them privately and tried to get across points that have been made previously by the first economist who testified and many others and many of you in your questions today. I'd like to start with a note of optimism, hopefully. I think I heard some things this morning that could find their way to solving the fiscal solution in Philadelphia. Your expertise on budget issues is extraordinary, and I hope you find a way to fill this budget gap and provide the services needed in the City without unduly taxing the products that are proposed in the Ordinance 100118, I guess it is. I have provided written testimony. I'll start with a word of optimism because of the good discussion that was held this morning and also the hearing that was held in City Council Chambers in 2002 that began a dialogue that I think has been extremely 253 3/17/10 - WHOLE - BILL 100118, etc. constructive, and that dialogue between Councilmembers and private organizations in the City of Philadelphia, ultimately the General Assembly and the State of Pennsylvania and now President Barack Obama and Michelle Obama at the White House have supported and embraced the model started here in Philadelphia entitled the Fresh Food Initiative, the Fresh Food Financing Initiative. And that program has resulted in the creation of supermarkets in underserved areas of the City and across the State of Pennsylvania in urban and rural areas. State funding, private funding have combined to develop almost 100 now programs in the last eight years, following constructive discussions that were started with a hearing in City Council Chambers. Those businesses across the state have created jobs, they've created tax monies in Philadelphia and for the State of Pennsylvania, but, most importantly, 254 3/17/10 - WHOLE - BILL 100118, etc. they've served the nutritional needs of the citizens of the area surrounding those stores. In meetings, as I mentioned, with the Administration leaders, including the Mayor and including his Budget Director and Dr. Schwarz, who testified earlier today, we tried to share with them our concerns about the specific proposal that they ultimately put on the table two weeks or so ago.
That proposal is the most onerous tax on sugar-sweetened soft drinks and dairy products in the country. By comparison, you've discussed the tax in Chicago a bit. It is similar to a sales tax, as was said by a Councilmember. The tax in Chicago -- population of Chicago is a bit larger than Philadelphia -- raises between $8 and $9 million a year. The tax in Philadelphia, as you've heard, would raise they think $38 and a half million in the first six months of this fiscal 255 3/17/10 - WHOLE - BILL 100118, etc. year, $77 million in the Fiscal Year 2012. That, as was noted, is a 4 percent increase in the business 5 privilege tax in the City of 6 Philadelphia, and proposing an increase 7 in tax of that proportion, when in the 8 last two fiscal years the business 9 privilege tax has declined, revenue has 10 declined by ten percent in '08 and by 14 11 percent in '09, is absolutely 12 extraordinary to me. 13 One other thing that I'll 14 mention is that I was quite concerned 15 earlier when I heard that revenue 16 forecast for the proposed tax by Mayor 17 Nutter's Administration, consultants were 18 found at Yale University, I believe it 19 was, in New Haven, Connecticut. New 20 Haven, Connecticut doesn't have a tax of this proportion levied on its consumers. And in their calculations, I believe -- and correct me if I'm wrong -- I believe I heard Dr. Schwarz say a few minutes ago that soft drinks and sugar-sweetened 256 3/17/10 - WHOLE - BILL 100118, etc. beverages are not taxable in Pennsylvania. That's incorrect. They are taxable, according to the state Department of Revenue and according to my receipt for the purchase of this soft drink product this morning. The state collects six cents on the sale of certain soft drinks and sweetened beverages in the Commonwealth, and the City of Philadelphia collects two cents. And just to -- I'm going to bore you with a couple of numbers that I've scratched out here, so if my math is incorrect, please let me know about it. 6 ounces of cola today, I got two for the price of one. So the cost was a dollar. 2 cents. That's the average retail supermarket profit from 1983 to 2007, the last year I could get it. 2 cents out of a dollar. The State of 257 3/17/10 - WHOLE - BILL 100118, etc. Pennsylvania receives six cents out of my dollar purchase. 08. I wonder if the City has calculated the current sales tax revenue they receive from the sale of all covered sweetened beverage products sold in the City. I'm not sure. Were the ordinance to be enacted, the cost remains at a dollar for this container. 2 cents. The state would receive 14 cents and six percent sales tax. 7 cents in the two percent sales tax that you collect in place. 55. It's a 236 percent increase in the cost of that product. And I say that to reinforce what is my theory about how the tax will reach its way to the 258 3/17/10 - WHOLE - BILL 100118, etc. consumer. 55 a container, consumers will stop buying it in the City of Philadelphia. As the economist just told us, they'll go across the border. They'll find some way to have it delivered to their home, being purchased out of New Jersey or Montgomery County or Bucks or Delaware Counties. And, number one, as noted, the tax will not be received because the item won't be purchased in Philadelphia, and there won't be any effective health benefit because consumers will find another place to purchase their product, their beverage of preference. For the dairy product, it will add a penny an ounce. This is 16 fluid ounces, so -- excuse me; two. 15. So you've got roughly a 30 percent increase 259 3/17/10 - WHOLE - BILL 100118, etc. in the price of a dairy product. I don't think that's the kind of policy that any consumer in Philadelphia or certainly person involved in the beverage or the retail industry could support. So I expect you're going to hear a lot more about this before a final solution is reached on the budget process.
But, again, this is a starting point, and from what I heard this morning, everyone is interested in sitting and talking and asking questions to find out what the facts are and getting to the bottom of the issue and preserving services without unfairly taxing the beverage industry. And we believe that the beverage industry will lose jobs if this tax is enacted. I believe that members who have started stores in Philadelphia in the last five years may go out of business, and they have shared that personal prediction with the Mayor, and I'm sure you're going to 260 3/17/10 - WHOLE - BILL 100118, etc. hear it from them personally as time goes on. So thank you for your time.
Thank you. Just a moment, please. The Chair recognizes Councilman Rizzo.
Mr. McCorkle, thanks for coming today. Just on the lighter side, I've been involved in a lot of issues in this Council and carried a BlackBerry for a lot of years now. I never knew you could fill one up until this issue hit. So your outreach has probably been one of the best, and it's been educational. I learned a lot from some of the folks that communicated. So it does have an effect, at least on me, some of the information that's been coming my way. So I just wanted to tell you it's been one of the best outreach efforts that I've ever seen. MR. McCORKLE: It's a team 261 3/17/10 - WHOLE - BILL 100118, etc. effort here. Councilman Rizzo, thanks for listening. This is a serious problem. We all have to work together to find a way to resolve it.
Where's the Diet Coke? MR. McCORKLE: Excuse me, Councilman Kelly?
Where's the Diet Coke? MR. McCORKLE: I'm not going to respond to that. It's a personal preference.
Mr. McCorkle, just a moment, please. The Chair recognizes Councilwoman Sanchez.
Thank you, and thank you for your patience, for all the folks who have come today to 262 3/17/10 - WHOLE - BILL 100118, etc. testify. I have a question, because one of my concerns, notwithstanding the obesity issue, which, again, for many of us is an important one, under what business model do you foresee your association cooperating and passing on this expense only to the products targeted? MR. McCORKLE: Specifically I think is the word "enacted." Again, if they applied it to only the products affected, they could not sell those products in their stores. Consumers would go to another location outside of Philadelphia and purchase the product. Very clearly, people will drive miles to save a cent or two cents on a gallon of gasoline. Now, if you don't have a car in the City of Philadelphia, you'll find somebody who will bring it to you who has purchased it out of the area without paying the tax. You might pay a little extra for that, but you wouldn't pay as much as if you paid the tax. 263 3/17/10 - WHOLE - BILL 100118, etc. So I think it would be spread, as others have suggested, over the cost of all items sold in the supermarket. So you lose it. But what that does is to increase the cost of groceries for the average family's family meals, and I don't think that's something that any of us can support. But I know that the retail industry and the beverage industry will work hard with you to continue our work against obesity in the City. The $20 million program, I think you asked excellent questions about that today. I think there are resources within the City where volunteers will work together to solve those problems in our communities in the City of Philadelphia. We've done that before. We'll do it again. We need a Philadelphia solution to this problem, not a solution that's come from New Haven, Connecticut or New York State or wherever else it might be. Let's focus on the issue and the jobs and the economy 264 3/17/10 - WHOLE - BILL 100118, etc. here and find a solution to health problems in our community.
One more question. You talked about the Healthy Foods Initiative, and I'm happy to have a Fresh Grocer on Broad Street to go visit. What percentage of the beverage industry for a supermarket in terms of their gross receipts, what percentage, do you know that, is beverages? MR. McCORKLE: Total sales?
On average, what's the percentage? MR. McCORKLE: It's large, because these are high-volume selling items. Milk, cola products, sweetened and unsweetened. Last time I looked, I think six out of the ten top-selling items in a grocery store were beverages, including juices. It's a huge number. These are the items that bring people into the store to buy their fresh fruits and vegetables and their meat and their other products. They are attractively 265 3/17/10 - WHOLE - BILL 100118, etc. priced and, in the case of milk, certainly nutritious and, in the case of cola products, certainly delicious. So they're something consumers want and we need to -- and the retailers' role is to make sure that they're available in the stores at the lowest possible price, which is why we're here objecting to this extraordinary tax on individual items within the store. I'm not sure that answered your question clearly. I can get you a percentage figure of supermarket sales for these beverage products.
It would be good for us to know I think as part of the information-gathering the percentage that beverages represent to supermarkets, because I do agree with you, I think it's a large number. I don't know -- I've heard numbers similar to the ones you've said. And I think for those of us who are struggling to keep some of those businesses in the community, we need to 266 3/17/10 - WHOLE - BILL 100118, etc. know that. I wanted to ask you, you mentioned that you had had conversations with the Administration. What was your perception -- what was the result of that dialogue? MR. McCORKLE: They were very generous with their time. They seemed to listen, but I believe I heard today -- again, correct me if I am wrong -- they didn't seem to realize that sales tax is already collected on these products, so their financial projections are in question, at least to me. I think, as was stated earlier I think by the Budget Director, they sent you over a couple of very complex, difficult items, one of which you heard last year that they might have known you were going to reject so that you could begin serious discussions about how to solve the problem. But they didn't say that. Again, I think everybody is 267 3/17/10 - WHOLE - BILL 100118, etc. listening. I hope we can find a solution. And I will say, Councilperson, that we've asked our members for a list of the items covered in the stores in Philadelphia were this tax enacted, 2,000 items. A typical supermarket has between 35,000 and 40,000 items. There are 140 flavored beverage mixes that would be covered. But it's about 2,000 items out of -- it's five percent of the items in the store. It's a big number.
Our next witness is Danielle Greenberg. After Ms. Greenberg will be Pete Ciarrocchi. (Witnesses approached witness table.) 268 3/17/10 - WHOLE - BILL 100118, etc.
I see that you have written testimony. If you would abbreviate your testimony, we will give a copy of it to the stenographer. It will be transcribed in full. So we'd appreciate it. Please identify yourself and proceed with your testimony. MR. McGREEVEY: Madam President, my name is Jim McGreevey from the American Beverage Association. I wanted to precede my colleague Danielle Greenberg with just some very short testimony on behalf of the industry. Would that be okay?
Go ahead. MR. McGREEVEY: Madam Chair, the beverage industry opposes the Administration's beverage tax for three reasons. We believe it is bad public policy to balance, in large part, the City's budget on the backs of our employees, our retail partners and our 269 3/17/10 - WHOLE - BILL 100118, etc. consumers. Our industry employs more than a thousand people in the beverage production and distribution jobs within the City of Philadelphia and more jobs in the Greater Philadelphia area. These are good-paying, many union, jobs. Our industry contributes to the region's economy and to the community through numerous community and philanthropic activities as well. The second reason we oppose the tax is that it is unfair to sanction our industry and our products for a special tax when our industry is playing a leadership role in addressing the epidemic of obesity. Just two very brief, but important examples. In 2006, the beverage industry pulled full-calorie soft drinks out of America's schools. This was done in partnership with former President Clinton and the American Heart Association. Our partnership, called the Alliance for a Healthier Generation School Beverage 270 3/17/10 - WHOLE - BILL 100118, etc. Guidelines, was modeled, in large part, on your initiatives taken in 2003 on this issue. President Clinton said a few weeks ago in relation to the School Beverage Guidelines, I applaud the beverage industry for the good faith and aggressiveness they've shown in implementing the guidelines, which are now fully implemented in America's 125,000 schools across America. Also, on February 9, 2010, we announced a partnership with First Lady Michelle Obama as part of her Let's Move Campaign. Our commitment is to clearly label all of our containers, vending and fountain machines with clear calorie information regarding our products. We're very proud of this initiative, as is Mrs. Obama, who said of our industry, that this is exactly the kind of vital information parents need to make good choices for their kids. Finally, we oppose the tax because we believe the Mayor does not 271 3/17/10 - WHOLE - BILL 100118, etc. have the authority to levy it under the Sterling Act. You'll hear more on this topic from our counsel later today. So just in brief, those are our three general objections to the tax, and I'm happy to stand for any questions after Danielle.
Thank you, Mr. Greenberg -- I'm sorry. Ms. Greenberg, I'm sorry. Would you proceed.
Good afternoon, Councilmembers and Chairwoman. My name is Dr. Danielle Greenberg and I'm a nutritionist with PepsiCo where I have worked for the past nine years, and prior to joining PepsiCo, I served on the faculty of Cornell University Medical College for 15 years where my area of research was in the study of obesity and the control of food intake. On behalf of the hundreds of employees who work for PepsiCo's bottlers here in Philadelphia, I want to thank you 272 3/17/10 - WHOLE - BILL 100118, etc. for the opportunity to be here today. There is no question that obesity is a serious public health issue, and as a leading food and beverage manufacturer, everyone at PepsiCo knows we have an essential role to play in helping to find solutions to this complex problem. However, as a scientist whose life's work has been devoted to obesity-related issues and as a mother of two, I know that taxing sugared beverages is not the solution. Please consider a few facts. According to scientists at the National Cancer Institute, the calories from soft drinks and other sweetened beverages are only 5.5 percent of the total calories consumed in the American diet. That means nearly 95 percent of our calories come from other foods and drinks. To address obesity, we will need to look much more broadly than just at soft drinks. And to illustrate this point, 273 3/17/10 - WHOLE - BILL 100118, etc. consider somebody who is eating 3,000 calories a day. That's someone who is clearly overeating. At 5.5 percent of calorie intake, the average, that would represent approximately 165 calories per day. Let's assume the beverage tax was effective in the -- to the degree that those proposing it suggest. That would be a reduction of roughly ten to 11 percent. This equates to between 15 and 12 25 calories a day. That is simply not 13 enough to have a meaningful effect on 14 weight loss. And, importantly, evidence 15 shows that if calories are cut in one part of the diet, say from beverages, they may easily be substituted elsewhere in the diet - doughnuts, candy bars, et cetera. Soft drinks and other sweetened beverages are simply too small a part of the total diet to make a meaningful impact on obesity. Data proves this out. Between the years 2000 and 2008, per capita consumption of sweetened beverages 274 3/17/10 - WHOLE - BILL 100118, etc. declined by eight percent. Obesity rates continued to rise. Let me repeat that point. Calories from sugared beverage was going down by eight percent. The effect on obesity was non-existent. The only way to address the multi-faceted problem of obesity is with comprehensive approaches that address both sides of the energy balance equation: The calories we consume in our total diet and the calories we burn through our daily activities and planned exercise. Weight management is very simple. It's not easy, but simple. Calories in, calories out. It's all about energy balance, and any solution to the obesity challenge must address both sides of this equation through education, total balanced diet and physical activity. PepsiCo has long recognized the vital role we can play in these efforts and we have worked for decades now to expand our offerings of low-calorie 275 3/17/10 - WHOLE - BILL 100118, etc. products and to help our consumers make healthier nutrition choices. Two decades ago we began acquiring new lines of business, including Quaker Oats and Tropicana. Our research and development resources, we have developed lower-calorie products, like Aquafina, Trop 50 and Zero Calorie SoBe Lifewater. This transformation has changed the nutritional face of our business. In fact, in the last five years alone, we have reduced the average number of calories that we produce in our beverages by 11 percent. We are also working to raise consumer awareness about calories. For years now, we have shown the calorie and nutrition information on our labels for the full container.
Doctor, excuse me a moment, please, but we do have quite a list of witnesses.
I have one more paragraph. 276 3/17/10 - WHOLE - BILL 100118, etc.
If you would abbreviate your remarks, we will make certain that your testimony will be given to the stenographer and it will be transcribed in full.
I understand. Let me finish the one part here that I think is really critical. We have been supporting the efforts of the First Lady. We have been involved with other organizations. Our Chairman and CEO, Indra Nooyi, played a pivotal role in forming the Healthy Weight Commitment, which is looking to reduce childhood obesity. We are a company that encourages nutritionists and scientists like me to make a difference in a place where my colleagues and I are proud to work, a company that seeks to partner in efforts to find common-sense solutions to complex problems like the one on the table today. We understand that in troubled 277 3/17/10 - WHOLE - BILL 100118, etc. economic times there's an appeal of a tax that purports to produce revenues and promote health. However, there's no 5 scientific or medical evidence that a beverage tax will reduce obesity. A sugared beverage tax is a simplistic attempt to solve a very complex problem. It may raise revenues, but there is no evidence that it will have any effect on obesity. Thank you very much.
Thank you very much. We appreciate your patience and taking the time to come in to testify. Thank you very much. Pete Ciarrocchi. (Applause.)
After Mr. Ciarrocchi, we will have Jerry Mondesire, if he's here, after Mr. Ciarrocchi. (Witnesses approached witness table.)
Good 278 3/17/10 - WHOLE - BILL 100118, etc. afternoon, Council President.
I'm glad that everybody is here. I would have a lot more people with me in my industry, but it is St. Patrick's Day, so, therefore, it is a little difficult to get the bartenders and other bar owners out here. But being Italian American, they voted me to come and speak for them. I hear a lot of numbers. There's a lot went on here today, and a lot is a little bit long in the tooth, and it's hard for people to digest. So I'm just going to hit you with the uneducated or the regular normal layman's what's going on here. First of all, I speak on behalf of the restaurants and bars, and I want to say that if they're talking about childhood obesity, then I have a bar. Where do I fall in there? Am I like serving underage people or giving it to 279 3/17/10 - WHOLE - BILL 100118, etc. kids? No. So I think there has to be some kind of thought process of what we're talking about. If it's just money for the City, well, it's a bad year for the City, I know, but it's a bad year for business. Who do you know that's saying, Wow, I had a great year? I didn't have a great year. (Someone yelled "AIG.")
It's been a little bit rough, and restaurants, I'm sure you will see in the next few months a lot of them aren't going to make it. Their margins aren't there. It's just -- it costs us just like it costs the City. So they're going to fall. But you're attacking the same type business again. Now, I want to give you a "for instance." I have a place on Roosevelt Boulevard, which is one mile inside the City of Philadelphia, not even. Around that restaurant there are many restaurants that have went under, around Chickie and Pete's on the Boulevard. 280 3/17/10 - WHOLE - BILL 100118, etc. There's a Champps, which is a successful chain nationally, hasn't made it in Philadelphia. They couldn't cut it. There's a big empty store there. There's other restaurants. I would like to think it's because of Chickie and Pete's they didn't make it, but it's not, because if you just go one mile up the road to Neshaminy, there is a mall of restaurants, a mall, Cracker Barrel, Red Robin, not places that I would normally go to, but I'm just saying there's a mall of restaurants all making it. Why? Because when I sell a drink, it could be -- the way it stands now, my drinks' increase will be so much between the liquor tax and the soda tax. Now, let me just read -- because most people read, but I just want to -- maybe somebody can clarify this for me. It says -- this is the bill. It says, Sugar-sweetened beverages: Any non-alcoholic beverage which lists any form of sugar. 281 3/17/10 - WHOLE - BILL 100118, etc. So can anybody answer me, does that include drinks? Because then I'll only have half an argument. Could somebody help me with that? Does anybody know?
Dr. Schwarz, can you answer that question, please. (Witness approached witness table.)
Just what I wanted to see, Dr. Schwarz. Good to see you, Doctor.
Don Schwarz. I'm sorry to have become your worst nightmare, but sugar-sweetened beverages are anything in which an added ingredient in the process is a sugar. So it is non-alcoholic, so alcoholic beverages are not included. So if you sell something as an alcoholic drink, it wouldn't be included.
So if I sold a rum and Pepsi, rum and Coke or a rum and 282 3/17/10 - WHOLE - BILL 100118, etc. Royal Crown soda, would that be taxed?
Okay. I'm glad you're sitting here, because I want you to sit right here. All right. Now, let's say this rum and Coke, Pepsi, whatever, is $4.50. Now, do I put the tax before I put the liquor tax or after I put the liquor tax?
Let's say there's 12 ounces of soda in there. How much is that?
Now that's 24 4.74. And now I add ten percent liquor tax to that, because liquor-by-the-drink 283 3/17/10 - WHOLE - BILL 100118, etc. tax. So now you're telling me I add to 4.74 another 47 cents -- or 70 cents, right?
That same drink is 5.20 at Chickie and Pete's, and I can go right up the street and buy that same drink for 4.50.
Why would you tax the same -- don't you think that's a little ridiculous?
It's about obesity in general. So if we look at adults in Philadelphia, I can go through the data there as well.
No, no, no. 25 (Applause.) 284 3/17/10 - WHOLE - BILL 100118, etc.