Bitter divide over sugary-drinks tax hangs over City Council vote
With leaders expected to decide this week whether to hold special election on pre-K funding plan, residents, special-interest groups raise questions about proposal’s ultimate costs
Ernesto Mendoza sat behind the controls of a forklift at the Coca-Cola Bottling Co. of Santa Fe, moving crates of sugary drinks for delivery to restaurants, grocery stores and other businesses across Northern New Mexico.
The 22-year-old Santa Fe resident has worked at the locally owned plant for about a year and a half. He has a 2-year-old son, Daniel, who attends a child care program at Santa Fe High School. Mendoza understands the benefit of future early childhood education programs when it comes to his son’s learning and well-being. He often goes to Sam’s Club and spends his own money to buy supplies for his son’s classroom, he said.
But Mendoza worries about the possibility of a sugar tax that Mayor Javier Gonzales wants to impose on the very products that pay his salary. He said he wonders whether people will drink less soda, resulting in the loss of his job.
“I won’t be able to help with my son’s school needs,” he said.
Kate Murray, a single mother who adopted a baby in November, faces a different worry for her son, Isaak.
“When I started to price child care and day care — my son is only 4½ months old — it’s horrifying,” said Murray, a native of Santa Fe. “It’s very clear to me that society expects me to either be a stay-at-home mom or live on government assistance.”
For Murray, a civil rights attorney who earns about $48,000 a year, the mayor’s proposal to tax sugary beverages to expand early childhood education programs in Santa Fe would alleviate some of her concerns about her son’s educational future. Though it’s not yet clear whether her son would qualify for free programs under the mayor’s proposal — eligibility guidelines have yet to be decided — she says she still supports the proposal.
“Frankly, one of my weaknesses is CocaCola, and I would feel a lot better about drinking one — because I know it’s bad for me — if it was at least good for my community,” she said.
The conflicting views underscore the growing debate in Santa Fe over the proposed tax as the City Council gets set to vote Wednesday on whether to send the proposal to voters in a special election in May. The battle is pitting supporters of the proposal against the deep-pocketed beverage industry, echoing fights playing out in an increasing number of cities across the U.S.
Last fall, voters in San Francisco, Boulder, Colo., and Cook County, Ill, which includes the city of Chicago, approved soda tax measures to fund city services and combat obesity. They joined Philadelphia, which passed a 1.5 cents per ounce tax on sweetened beverages in June to pay for early childhood education.
In Santa Fe, the debate comes as the proposal is still evolving, leaving a slew of unanswered questions. How much of the tax will distributors
pass to retailers? Will the consumer ultimately be left paying the bill? Will there be enough money to pay for the intended prekindergarten programs? How will the city oversee collection of the taxes?
And will the expansion of pre-K programs come with a human cost?
Shifting numbers
The proposal calls for taxing distributors of sugar-sweetened beverages, such as sodas and energy drinks, 2 cents for every ounce sold, to raise some $7 million for early childhood education programs. The proposed tax would add as much as 24 cents to the price of a 12-ounce can, $1.35 to a 2-liter container and $2.88 to a 12-pack.
The tax also would be imposed on syrups and powders, such as KoolAid and Lipton iced tea. For concentrates, distributors would pay 2 cents for the maximum number of ounces the product could create. For example, a can of powdered iced tea might make 1 gallon of tea, or 128 ounces, resulting in a $2.56 tax.
Gonzales initially included diet drinks in his proposal, but he dropped the idea in December, resulting in revised revenue estimates.
The latest proposal also would exempt distributors with annual gross receipts of less than $100,000, an effort to shield startup companies, and drinks with less than 5 grams of sugar per 12 liquid ounces, which would spare some beverages, such as kombucha, a popular probiotic drink, that the mayor has described as “products that are deemed to be focused on a healthier outcome.”
At recent city Finance Committee meeting, the mayor suggested raising the exemption from 5 grams to 10 grams per 8 ounces, highlighting the evolving nature of the proposal even as it heads to the council for a vote.
The fight has already led to the creation of two opposing political action committees that are spending money on mailers, radio ads and out-of-state political operatives. One committee is backed by some of same people behind an independent PAC that supported Gonzales’ first run for mayor. The other PAC includes industry supporters, including the Santa Fe Chamber of Commerce and the American Beverage Association.
How much is being spent on the battle won’t be known until campaign finance disclosures are filed with the city later this month.
Opponents say the tax would disproportionately impact many of the same people it is supposed to help — lower-income families, for example.
“The proposed tax fits the definition of a regressive tax, in that it places a larger share of the tax burden on low-income and middleincome workers as opposed to the wealthy,” David Huynh, a spokesman for a political action committee opposing the proposed tax, said in an email. “Lower-income households spend a larger percentage of their income on food than wealthier households, so will pay a greater share of their income on the tax.”
Others believe the tax would not only lead to a likely decrease in soda consumption but also layoffs. And if consumption does decline, they say, so would the revenues to sustain the pre-K initiative. If that happens, Gonzales says, the community will have to roll up its sleeves and find other ways to keep the programs solvent.
The timing of the measure also has become an issue. The mayor and some city councilors are squabbling over when the matter should be put before voters. Gonzales is pushing for a special election in May, saying the need to provide children more access to pre-K programs is urgent and can’t wait for the regular election next year. His push for a special election has ignited accusations that it’s a political move, although risky, intended to pad his résumé if he runs for governor or seeks another mayoral term in 2018, a charge he denies.
A ‘critical’ need
While the debate intensifies over the economic consequences of the proposal, few argue against the advantages of expanded pre-K programs. Among other benefits, a growing body of evidence shows that early childhood education programs help raise reading proficiency and graduation rates among students and cut back on juvenile crime and incarceration.
In a state that typically ranks last or near last in educational achievement, Gonzales calls the need “critical.” A study commissioned for the proposal showed that up to 1,000 3- and 4-yearolds in Santa Fe are not enrolled in pre-K programs, many because spaces aren’t available in public programs and their parents can’t afford the costs of private ones, which can charge around $1,000 a month or more.
Santa Fe Public Schools, for example, currently has about 370 children enrolled in pre-K programs at various schools. But only 140 of those students are in full-day pre-K programs because of a lack of funds. The mayor’s initiative would help the district expand its many half-day slots into full-day opportunities, said Trina Raper, executive director of curriculum and professional development at Santa Fe Public Schools.
The proposal also would provide money for professional development to improve the quality of teachers in pre-K classrooms, she said.
But how to pay for such programs has always been a challenge. With the state still struggling financially from a drop in oil and gas prices, efforts by state lawmakers to expand early education have gained little traction.
Gonzales said at the recent city Finance Committee meeting that it’s time for Santa Fe to step up “in a way that our state and federal government have not.”
Who will pay?
How much of the tax consumers would shoulder is also a source of debate.
Economist Kelly O’Donnell, who conducted the economic study on the mayor’s proposal, said in her report that beverage distributors “would likely pass at least a portion of the tax on to consumers.”
Barry Kiess, CEO of Coca-Cola in Santa Fe, said he would have little choice but to pass on the cost.
“Our profit margin is so small that there is no way we can afford to not pass on 100 percent of the tax,” he said.
Robert Farrell, who also works at the Coca-Cola bottling plant, which has been in business for nearly a century, calls the proposed tax worrisome.
“It could possibly jeopardize my job here if there are cuts,” said Farrell, one of about 75 employees at the plant. “I’m one of the new guys, so I’ll probably be the first to go.”
Kiess says Mendoza and Farrell’s concerns about losing their jobs are grounded in reality.
“Our business is all based on volume. Their hours could go down if they are not loading trucks as much,” he said. “It will definitely impact their overtime and maybe their regular hours.”
He lays out some specifics. A 5-gallon “bags-in-box” of soda concentrate, which restaurants use to make their own sweet drinks and sodas for their dispensers, now costs about $75.80. The 2-cents-per-ounce tax would double that price overnight.
Cheryl Pick Sommers, who owns and operates Kaune’s Neighborhood Market in downtown Santa Fe, said she also knows how she is going to deal with that load.
“Given the narrow profit margins we have in this store, I think we will be forced to pass it along to customers,” she said.
Like Kiess, Sommers also has figured out what the sugar tax will mean in mathematical terms: A 12-pack of 12-ounce cans of Coca-Cola, currently selling for $6.49, would now generate a tax of $2.88, meaning that on the surface, the price would immediately jump up to $9.37.
She worries about other unintentional fallout from the plan. If her customers want to avoid paying higher prices, they may just drive out of the city limits to grocery stores in the surrounding county that will not impose the city tax.
And if they do that, they’re unlikely to just buy soda.
“They are going to buy everything and find a new store to shop at,” she said. Kiess agrees. “Those consumers will take their business elsewhere,” he said. “If they go to Albuquerque to buy soda in large quantities, they will also stop there to eat at restaurants and take in other sights, moving other business away from Santa Fe. That’s a bad spiral we could go down.”
Competing studies
How customers would react to the proposed tax is a point of contention between O’Donnell’s economic study and an analysis prepared on behalf of the American Beverage Association, which opposes the tax proposal.
Kevin Dietly, a principal with Northbridge Environmental Management Consultants, a Massachusetts-based financial, economic and management consulting firm hired by the American Beverage Association to conduct the study, contends that O’Donnell overestimated revenue projections.
“When you put a tax on a small geographic area, one of the things that economic modeling doesn’t account well for is the fact that people can avoid it by driving 10 minutes in any direction and buying the same product without paying the tax,” he said.
“People would still be purchasing the product,” he added. “They just wouldn’t be purchasing it in the city and paying the tax on it.”
O’Donnell said the East Coast firm doesn’t seem to know much about Santa Fe’s specific geography and economy.
“One thing they don’t seem to get is that Santa Fe isn’t next door to any other big communities, so avoiding the tax isn’t going to be as easy as walking across the street,” she said in an email. “They also don’t acknowledge that a lot of folks commute into Santa Fe each day. That, plus tourism, suggests that in Santa Fe, a larger relative share of [sugarsweetened beverage] consumption happens in restaurants, which would tend to increase the average cost per ounce.”
Some supermarkets and distributors in Philadelphia say soda consumption has dropped between 30 percent and 50 percent since the tax went into place there in January, forcing them to consider layoffs, according to news reports. PepsiCo announced last week it would lay off 80 to 100 workers, about a quarter of its staff at its Philadelphia-area distribution plants, because of the slumping sales.
City officials there blasted the announcement, accusing the industry of fearmongering and pointing to the 251 jobs, mostly pre-K teaching positions, the program has created so far. The city also pointed to higher than expected revenues generated from the tax in the first month. It brought in $5.7 million in January, about twice the amount projected. While that’s still short of the average of $7 million per month the city needs to fund early childhood programs, officials said they expect monthly totals to increase as collections are fully implemented and consumers recover from initial sticker shock.
“The soda industry sunk to a new low today,” Lauren Hitt, a city spokeswoman, told the Philadelphia Inquirer following Pepsi’s announcement. “They are literally holding hostage the jobs of hard-working people in their battle to overturn the tax. Pepsi reported nearly $35 billion in gross income and $6 billion in profit last year. … The idea that they can afford to do that but ‘must lay off workers’ should make every Philadelphian very skeptical of whether these layoffs are actually due to the tax.”
Dietly’s analysis found that as many as 77 jobs could be at risk in Santa Fe if the tax goes into effect.
Even if that claim proves true, O’Donnel believes jobs created from pre-K expansion — an estimated 196 positions for teachers and administrators — will more than offset the losses.
“So, even if the doomsday prophesy comes to pass — which will be the fault of the distributors, by the way — Santa Fe will still be up by over 100 jobs,” she said.
A view from the aisles
Shopping on a recent day at the Wal-Mart Supercenter on the city’s south side, Rita Puckett-Uranga said the tax, which she opposes, would change her buying habits.
“We’re just not going to be buying soda much anymore, is what’s going to happen,” she said before lifting a 24-pack of Dr Pepper into her shopping cart. “People will quit buying it.”
Another Wal-Mart shopper, a woman who declined to give her name, apologized for “butting in” during the interview with Puckett-Uranga but said she wanted to make her feelings about the proposed tax known.
“I don’t even drink soda, but I’m very much opposed to any more damn taxing,” she said. “We’re already overtaxed as it is.”
“Totally,” agreed Puckett-Uranga, who has lived in Santa Fe for 50 years.
Across town at the Food King grocery store on St. Michael’s Drive, Española resident Julie Salazar was busy loading three 12-packs of sodas into her shopping cart. She said she, too, would cut down if the tax passed.
“That would be a good idea to have everybody cut down on the sodas and drink better, not only for their health but a good example for the family,” said Salazar, who said she comes to Food King because it’s cheaper than Española stores.
Salazar said she knows sodas contain a lot of sugar, but she buys them out of habit.
“Next time, it’s either water or juice, tea, but not so much soda,” she said, laughing.
For Mendoza, the Coca-Cola employee who said he is not accustomed to dabbling in political matters, it all comes down to this: Will the sugar tax cost him his livelihood?
“My job means a lot to me, the work benefits and all of that,” he said. “I would lose everything that I have.”
But Murray, the lawyer and single mom, said the debate ultimately must focus on the needs of children.
“I feel like we don’t often get these moments to act in a way that will create lasting change,” she said. “The fact that ultimately I hope to benefit, too, is nice. But I don’t think it is purely about, ‘Please, make my life easier.’ ”
Contact Robert Nott at 505-986-3021 or rnott@sfnewmexican.com.
Contact Daniel J. Chacón at 505-9863089 or dchacon@sfnewmexican.com. Follow him on Twitter @danieljchacon.