Philadelphia lawmakers reject mayor's proposed US$0.02/ounce soda tax to plug school system's budget deficit; critics said tax would cost city hundreds of jobs by forcing residents to buy soda outside of city

PHILADELPHIA , June 17, 2011 () – Philadelphia lawmakers approved a proposal Thursday to raise taxes on real estate, not soda, in order to help the city school system plug a $629 million deficit that has officials threatening hundreds of teacher layoffs.

Stakeholders and students filled City Council chambers all day as the panel weighed options for avoiding job losses and drastic program cuts in the cash-strapped district, which was seeking about $100 million in aid.

Late Thursday night, council members passed a preliminary plan to raise property taxes about 3.5 percent for one year to generate $37 million for education. Combined with money from the city's surplus fund and a hike in parking meter fees, the total aid package comes to $53 million. A final vote is expected next week.

"It's more than we had just 12 hours ago, so I'm pleased that we made progress," Superintendent Arlene Ackerman said after the marathon council session and 11-6 vote.

Mayor Michael Nutter had proposed a 2-cents-per-ounce tax on soda and other sweet drinks to generate $60 million for the schools -- similar to a plan that was scrapped last year. Critics, however, called it an unnecessary tax that would cost hundreds of jobs in the beverage industry while encouraging people to leave the city to buy soda.

Dozens of soda tax opponents filled the council's ornate chambers with signs bearing slogans such as "Say No to the Beverage Tax" and T-shirts reading "Philly Jobs Not Taxes." One soda company executive testified that the tax proposal would cost 1,200 jobs because people would leave the area to buy soda.

"Any beverage tax will be devastating to our local business," said Fran McGorry, the head of Coca-Cola's operation in the Philadelphia area. "Our industry really just doesn't understand why we're being singled out."

Critics of the tax also pointed out that PepsiCo shut down a manufacturing line in Baltimore earlier this year and 77 jobs were cut shortly after a similar tax was implemented there.

Supporters of using soda taxes to support education chanted and sang in the hall outside the chambers. Inside, sign-waving supporters at one point garnered a warning from City Council President Anna Verna: "Wait a minute, we're not at a football game."

Philadelphia, the state's largest district, which serves about 203,000 traditional and charter school students, is facing a record deficit and issued more than 3,000 pink slips this month to teachers and other employees.

On Wednesday, the state Supreme Court ruled that it would not intervene in the legal battle over layoffs between the district and the teachers union; about 1,500 teacher layoffs will remain on hold pending a yet-to-be scheduled hearing in Common Pleas Court.

City budget officials testified that the soda tax was needed to help the school district prevent cuts to myriad programs including early childhood education, sports and music. Transferring money from other city departments, they said, would simply create problems in public safety and other budgets.

"I know that there are trade-offs," city finance director Rob Dubow said. "We think it's essential that we fund the district."

Councilman James Kenney questioned whether the school district was prioritizing correctly and suggested that money could be saved in areas such as an 18-day summer program slated to cost $23 million.

But another councilman, Curtis Jones, said the city can't afford to skimp on public education that helps determine what happens next in the lives of city residents. "We pay now or we pay later," he said.

Associated Press writer Kathy Matheson contributed to this report.

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