Mayor Nutter’s Proposed Revenue Package to Generate New Funds for Philadelphia’s School Children

After making hundreds of millions of dollars of cuts over the last two years and closing 31 schools, the School District is facing a $304 million recurring deficit in FY14 and has made requests of its two major funders, the City of Philadelphia and the Commonwealth of Pennsylvania, to help close this structural gap. Dr. Hite and the School Reform Commission asked the City to provide $60 million in new recurring revenue, in addition to the increases and funding the District already receives from the City, and asked the Commonwealth to increase funding by $120 million. Without this additional $180 million in revenue, the District would be forced to make devastating cuts that would severely impact the quality of education it provides. The Mayor announced a three-fold plan to generate $95 million in FY14 and more than $130 million annually through FY18.

1. Increase the Liquor Tax to 15%
Currently, the Liquor Tax generates about $45 million in revenue for the School District at the rate of 10% per drink. If the tax was increased to 15%, it is estimated that an additional $22 million would be generated. The State would have to pass enabling legislation to allow the City to raise the tax rate (Senate Bill 944 has been introduced), and City Council would have to pass legislation.

2. Impose a $2 Per Pack Cigarette Tax
Imposing a tax of $2 per pack of cigarettes would generate approximately $45 million for the School District in FY14 for 6 months because it would take until January to implement the new tax. In FY15, the first full year of collections, the tax is expected to generate $87 million for the District. The FY15 collections are projected to be less than twice FY14’s half year collections because of a predicted decline in the number of smokers in the city. The number of smokers and the amount of revenue is projected to decline each year thereafter ($81 million in FY16, $78.5 million in FY17, and $76.9 million in FY18).
In addition to the revenue generated for the School District, funding would be established for a City-wide tobacco cessation program. In FY14, $1 million would be set-aside for this program, growing to $2 million in FY15 and thereafter, to tackle the health problems associated with smoking. In Philadelphia, approximately 280,000 adults smoke, with 2,100 deaths caused per year by smoking. With the increase in the cost to smoke, as well as the programs that the Health Department will manage, the City hopes to decrease the number of smokers in the city and reduce the number of deaths.
In order to impose this tax, the State will have to pass enabling legislation (Senate Bill 945 has been introduced), and City Council would have to pass legislation.

3. Additional Tax Revenue Collections
The table below outlines the additional projected School District tax revenue collections to be generated in FY14. The new Delinquent Tax Strategy announced by the Mayor in February, coupled with the new appointments of Clarena Tolson as Revenue Commissioner and Tom Knudsen as the first Chief Revenue Collections Officer and the new tools being sought by the Commonwealth, the Administration will look to expand and improve current efforts and test new solutions to generate additional revenues. Among the ways in which additional revenues will be collected are contacting delinquent taxpayers earlier and increasing the use of outside collection agencies.

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