School tax plan: Drinks, smokes

To raise money for the desperate Philadelphia School District, Mayor Nutter proposed Wednesday to tax cigarettes at $2 a pack and raise the city's liquor-by-the-drink tax from 10 percent to 15 percent.

Alongside School Superintendent William R. Hite Jr. and others at City Hall, Nutter also pledged to improve city tax collections.

The mayor estimated that his plan would raise an additional $95 million for schools in 2013-14 and $135 million in the second year.

Nutter stressed that the money would benefit not only students enrolled in district schools but those who attend the 84 taxpayer-funded charter schools in the city.

Unwilling to raise property taxes again, Nutter said the plan was "sustainable and substantial - and the key is, it's doable."

Faced with a daunting $304 million spending gap in the next fiscal year, Hite has asked for $60 million in new funds from the city and $120 million from the state. The district is seeking givebacks from the teachers' union to cover the rest.

Hite has outlined a scenario in the absence of the new funding where schools would be without new books, paper, clubs, counselors, librarians, or secretaries. Athletics, art, and music would be gone.

The proposed cigarette and drink taxes require passage of enabling legislation in Harrisburg, and City Council approval.

The proposed drink tax would begin July 1, and the cigarette tax would begin Jan. 1.

In addition to the money for the schools, Nutter said, $2 million from the cigarette-tax proposal - estimated to raise $87 million in its first full year - would support the city Health Department's smoking-cessation program.

As for cracking down on outstanding taxes, Nutter said the city would focus on delinquent real estate taxes, liquor by the drink, Use and Occupancy, and school income taxes.

"We're going to get much more aggressive with these nonpaying taxpayers, and we'll use outside collection agencies where needed," he said.

He and State Sen. Anthony Hardy Williams (D., Phila.), who attended the news conference, said the plan had been endorsed by Philadelphia's legislative delegation - a group of Democrats with limited power in the Republican-dominated legislature.

Williams said the city, the district, the School Reform Commission, and the Philadelphia delegation had worked together to develop the plan. Asked whether he had consulted with Republicans, Williams said that Nutter has made significant inroads and that he had his own talks.

"The point to that is this is a collaborative effort," Williams said. "Obviously Harrisburg knows that."

Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi (R., Delaware), said he did not believe Pileggi had been briefed in advance on the mayor's proposals.

"Generally, we have a great deal of respect for Mayor Nutter," Arneson said. "He has a great deal of credibility in Harrisburg. But I do believe it will be an uphill climb, despite the fact that it would be limited to Philadelphia."

The legislature at times has granted limited taxing powers to Philadelphia and Pittsburgh, he noted, but added, "It is never done lightly, and it is never an especially easy thing to work through the General Assembly."

Steve Miskin, spokesman for the House Republicans, said they would need to see Nutter's actual proposals before commenting.

Council President Darrell L. Clarke, who proposed raising the liquor-by-the-drink tax more than a year ago, said he was excited that legislators - especially those in the Philadelphia delegation - were supportive of measures that would aid the city.

But Clarke said that even if Harrisburg passed legislation for the cigarette and drink taxes, those measures do not address the district's need for more state aid.

"I still have to say there is this $120 million issue that continues to be the more significant part of the puzzle, and I'm not hearing anything from the state about that," Clarke said.

He also said Council could not consider Nutter's proposals until the Assembly passes the legislation.

Clarke said he would be prepared to support the cigarette and drink taxes, but added, "Whatever we do requires nine [of 17] votes."

He also said he was concerned there might not be enough time to tackle the plan before the Council's June 30 deadline for adopting a budget.

Councilwoman Jannie L. Blackwell, who chairs the education committee, said she would back the cigarette tax and a drink tax only if it exempted small neighborhood bars.

"I'm for taxing the big casinos, but not the little corner businesses," said Blackwell, who voted against the 10 percent liquor-by-the-drink tax when it was instituted in 1994.

Councilman Mark Squilla, the only member to attend the mayor's announcement, said he might be willing to consider the $2 cigarette tax because it would be collected by the state and sent to the city. The state has a collection system in place for the $1.60-per-pack state tax on cigarettes.

But Squilla thought the best way to provide more money for schools was a more aggressive collection of existing taxes.

He said Nutter could concentrate on collecting $500 million in delinquent real estate taxes and improve the 40 percent rate on the current drink tax.

"The money is available," he said. "We just need to take the initiative and go after it."

Nutter has pledged for much of his administration to improve city collections without being able to deliver, as documented in a series of Inquirer/PlanPhilly articles showing that Philadelphia has the worst property-tax collection rate among the largest U.S. cities.

In April, Nutter hired Thomas Knudsen, who rescued a nearly bankrupt Philadelphia Gas Works, to a new position of chief revenue collections officer.

Finance Director Rob Dubow said the city should be able to bring in an additional $28 million a year - $15 million through better collection of current taxes, and $13 million a year in delinquent taxes.

The city will focus on the taxes on liquor by the drink, real estate, school income, and Use and Occupancy, Dubow said.

The cigarette tax would also reduce the number of smokers, Dubow said. The estimated 280,000 city smokers would fall to under 240,000 in five years, based on experiences in other jurisdictions with tobacco taxes, Dubow said.

The cigarette tax would bring in $45 million for its first six months, jumping to $87 million in the first full year, 2014-15, Dubow said. It would fall to $77 million over five years with declining sales.

Liquor by the drink is to bring in $22 million annually without any predicted fall in consumption.

The combined measures are expected to raise $95 million in the first year, and jump to $135 million combined in 2014-15.

The numbers are higher than the $60 million requested from the city by the School District, suggesting that Nutter is either willing to bargain or to expect less from the state.