In June of 2017 the City Council passed a sales tax on sweetened beverages, to take effect on January 1, 2018. Now, with some initial data in hand, the Mayor and City Council are deciding how to spend the tax revenues over the next two years. But things haven’t turned out the way the experts predicted, raising questions about whether the “soda tax” was such a good idea in the first place. It equally raises questions about the motives of the city officials charting the tax’s future.
The sweetened beverage tax (SBT) was trendy but controversial from the beginning. Sponsored by former Council member Tim Burgess and following the example of Philadelphia and several Bay Area cities, it was touted as a public health intervention which would decrease the consumption of unhealthy sugared beverages by making them more expensive than healthier alternatives. However, those unhealthy drinks are disproportionately consumed by low-income consumers, making the tax a highly regressive one. Burgess and Council member Mike O’Brien conferred with leaders of the most impacted communities, who acceded to the tax on the condition that the revenues would be returned to the communities in the form of food access, nutrition, and health programs. The Council members also established a Community Advisory Board to provide recommendations on how a portion of the revenues should be spent. The Council considered a long list of potential amendments to try to lessen the most regressive aspects of the tax; in the end, however, they made it even more regressive by increasing the tax rate (O’Brien went to bat for this, to drive down consumption as much as possible) and exempting artificially sweetened “diet” drinks — all in the name of driving down consumption as much as possible. Council members also worked hard to get a piece of the revenues too for their pet causes: Juarez got a larger slice for food banks including North Helpline; Burgess took a cut for the Seattle Preschool Program; and Harrell funneled a part to the 13th Year Promise program. Recognizing that when consumption declined the tax revenues would also decline, 20% of the revenues were set aside for one-time expenditures that could be discontinued in the future. In the end, the final sweetened beverage tax bill passed by a 7-2 vote, with Herbold and Sawant finding it simply too regressive to support.
Fast-forward a year. As researchers begin to complete an initial round of studies on sweetened beverage taxes in Philadelphia, Berkeley, and other cities, a pattern has emerged: the tax drives down sales of the taxed beverages in the cities where the tax is imposed, but it increases them in the surrounding cities. More importantly, it doesn’t drive down consumption: caloric intake is nearly unchanged.
In Seattle, it was estimated that the tax would generate about $15 million in revenues in 2018, its first year in effect. But over the summer the City Budget office revised that estimate up to $20.6 million based upon revenues through the first half of the year. But equally important: based on expert advice, it abandoned the belief that the revenues (and the underlying consumption) would decline further over time. In fact, the city now projects annual revenue increases for 2019 ($21.3 million) and 2020 ($21.9 million).
And suddenly the SBT took on new prominence in this fall’s budget deliberations. The Mayor had a problem: after last fall’s budget debacle, the Council patched the budget hole with one-time funding for critical programs. The Mayor doubled down on that with her own mid-year budget requests, including her “Path to 500” surge in homeless shelter beds. But with a surprise excess in sweetened beverage tax revenues, she had an opportunity to replace the one-time patch with sustainable funding.
One problem: the sweetened beverage tax legislation constrains the use of the tax revenues to the list that had been negotiated with the community:
1. Expanding access to healthy and affordable food, closing the food security gap, and promoting health food choices;
2. Evidence-based programs that improve the social, emotional, educational, physical health, and mental health for children, especially those services that seek to reduce the disparities in outcomes for children and families based on race, gender, or other socioeconomic factors and to prepare children for a strong and fair start in kindergarten;
3. Administration of assessing and collecting the tax;
4. Ensuring resources for the Office of Sustainability and the Environment and the Sweetened Beverage Tax Community Advisory Board;
5. The cost of program evaluations conducted by the Office of the City Auditor under subsection 5.B of this ordinance, including costs borne by other City departments in facilitating such evaluations.
While homelessness response programs are important, they aren’t included in that list. So the Mayor’s Office used a time-honored trick: rather than use the excess revenues to increase spending on programs listed above, they substituted SBT revenues for more flexible “general fund” dollars that had been funding those programs, and then redirected the general fund dollars to replace the one-time funds for homelessness programs. It follows the letter of the law in that the SBT funds are all being spent on permitted programs, but it violates the spirit of the law — and the trust of the community members who insisted that the money be reinvested in their community.
To make matters worse, the Mayor’s budget doesn’t follow the recommendations from the Community Advisory Board (CAB) tasked with guiding SBT investments.
Yesterday morning, the City Council held a Budget Committee discussion on the Sweetened Beverage Tax. There was much performative hand-wringing on the bait-and-switch of SBT and general-fund dollars the Mayor used to sustainably fund homeless programs, as well as the deviation from the CAB’s recommendations. However, they recognized that the Mayor had put them between a rock and a hard place: in order to unwind the bait-and-switch, they would need to reduce funding for homeless programs — a bad policy move, and political suicide for progressive elected officials.
Worse, none of the Council members were willing to speak to the policy failure of the SBT. In fact, just the opposite: they embraced it by buying in on using SBT revenues for sustained funding for critical programs, a big no-no if they still expected the revenues to decline over time. The Mayor has also proposed reducing the 20% set-aside for one-time expenditures to 10%, another tacit acknowledgement that they no longer expect the SBT revenues to decline. None of the Council members balked at this.
The Council members and the Mayor are all smart and well-informed. They understand that they are pushing the city to be increasingly dependent upon sustained revenues from a highly regressive tax that is failing as a progressive policy initiative, and they are complicit in violating an agreement with the community on how those revenues should be spent.
We can understand how they arrived at this point: the city’s revenue growth has dropped down to about the rate of inflation, which means that the city isn’t gaining additional buying power. Any new expenditure, such as for homeless response, public safety, and transportation, requires either cutting somewhere else, or finding a new source of revenue such as the SBT. They are being pushed to fund many critical programs, and a pot of money is sitting in front of them.
But now they are careening down a terrible path, committing for the long term to a failed policy initiative because they need the money — never mind that the money is coming from poor people. Washington has the most regressive tax system of any state in the nation, and Seattle has the most regressive tax system of any city in the state. We are the worst of the worst, and this is how we got here.
You can read the Council’s budget memo on the Sweetened Beverage Tax here, and watch the video of their discussion on the tax here.
Very clear and compelling explanation. It’s completely frustrating that there is no thought to removing the tax since it is not achieving its objectives. Instead they are doubling down by ignoring the Community Advisory Board’s recommendations. Bad faith indeed.
With 725,000 residents (and ignoring tourists and people who work in Seattle but live elsewhere) the $21M beverage tax is bringing in $29 per person, per year. This equates to 8 cents per day, or 4.5 ounces of beverages subject to the tax, per person. Using Coca-Cola as a reference (150 calories/12 ounces), that 56 calories. The initial budget of $15M would be 40 calories. So that’s the problem the City was trying to solve, 40 calories per person/per day?
If consumption was evenly distributed across the population, that would be the right analysis, but it isn’t. Consumption is heavily tilted toward low-income populations — and soda companies specifically target those populations with advertising and promotions to encourage consumption. It is a major public-health issue as it drives obesity, diabetes, and other health issues in those communities. That is the problem the city is trying to solve.
Keep the SBT. Keep using the money to educate kids and help homeless via food banks.
Your analysis zeroes in several important policy questions. However, your conclusion that the sugary drink tax is failing to reduce consumption of the most health-destroying “food” product on the market is lacking sufficient evidence, less than a year into the tax. Lets look at health outcomes over time and then make a call as to whether this is such a failed experiment; data from elsewhere suggests you might see falling diabetes rates and related complications, for example. That alone would make the SBT a resounding success. You can tell by the astronomical sums the soda companies are spending to fight the very prospect of other local taxes (I-1634) that THEY certainly believe the tax will be effective. Of course, it would be even more effective if surrounding jurisdictions also passed them.
It will be interesting to see what longitudinal studies show. Here’s the thing though: based on previous sin taxes, the models say that there should be a noticeable initial drop in consumption, followed perhaps by a bit of rebound (like we see with road/bridge tolls) and then perhaps a slow decline from there. But the studies are not seeing that; they are seeing a shift in buying, but not in consumption. If it does cause a decline over time, it’s following a model that no one has seen before.
The most recent study on Philadelphia, which just came out in the last few weeks, showed a tiny decrease in consumption in Philadelphia, but a much larger increase in consumption in the surrounding areas. Not sales, but consumption — of residents of those areas, not people border-shopping. Either the study is flawed (a real possibility) or we simply don’t understand how this kind of thing plays out in communities.
And Seattle’s elected officials are clearly bought into the belief that consumption isn’t going to decline anytime soon.
There is also an argument to be made that a city is too small a geographic area for a policy intervention like this to have the desired effect.
Thank you for posting further detail. I have been studying the tax, due to the new initiative that was on the ballots for the mid-terms (the one blocking future measures of this sort). I am very upset about the tax itself, especially since it is taxing low-income communities to pay for programs for low-income communities. And it is not working. UW is working on a study of the effects of the tax, but the results have been delayed till the fall of this year. And the CBO for Seattle is (as you have stated) calculating that revenues will continue to rise. The switch and bait tactics of the mayor are gross. Yes, we need to find funds for homeless, but not off the backs of low-income communities. Has there been any backlash or uproar? I am currently going through all the budget meetings as I do not live in Seattle, but am impacted by the decisions made in the city, so I do not know if citizens have called this out.
I have not seen this called out by others. The public comment sessions on the budget have been dominated by providers (and their supporters) asking the city for money.