Philadelphia passes soda tax after mayor rewrites playbook

NEW YORK (Reuters) - Philadelphia Mayor Jim Kenney scored a victory that had eluded more than 40 U.S. public officials who took on the powerful U.S. soda industry when the city council voted on Thursday to slap a tax on sweetened drinks.

After a bitter, months-long battle, the city council voted 13-4 to approve a 1.5 cent-per-ounce tax on sugary and diet drinks beginning in January. The council already approved the plan in a preliminary vote last week, and the outcome had not been expected to change.

The City of Brotherly Love became the biggest U.S. city to have such a tax. Much smaller Berkeley, California, was the first.

Similar efforts, including several spearheaded by former New York City Mayor Michael Bloomberg, were defeated after intense lobbying from organizations like the American Beverage Association, which opposes the Philadelphia move and represents Coca-Cola Co and PepsiCo Inc.

Following Thursday's vote, the ABA said it would take legal action to stop the tax.

The Philadelphia vote marked a major victory for health advocates who say sugary drinks cause obesity and diabetes. But experts noted those concerns were not the focus for Kenney and other backers of the tax as they took on critics complaining that "nanny state" public health measures intrude on residents' personal lives.

Instead, Kenney rewrote the soda-tax advocate's playbook. He played up the benefits of the cash injection from the tax for the city's depleted coffers. In the first year, the tax is projected to raise $91 million, and he pledged to spend funds on public programs such as universal pre-kindergarten.

"If you want to tax something and people know where the money's going to go, then it's easier for them to get behind it," Kenney said in an interview. He noted that focusing on revenue, rather than health, was largely responsible for the measure's passage.

The strategic shift could lend momentum to movements in San Francisco, neighboring Oakland, California, and Boulder, Colorado. Residents of those cities will vote in November on similar taxes, which could deal further blows to a U.S. soft drink industry already hit by declining soda consumption.

U.S. soda consumption fell for the 11th straight year in 2015, according to Euromonitor data.

AVOIDING THE BLOOMBERG TRAP

Bloomberg made public health a centerpiece of his tenure as New York City mayor between 2002 and 2013. He moved to limit smoking in parks and restaurants, ban transfats and require calorie counts posted in some restaurants.

On soda, he pushed for a tax, then a ban on soda purchases with food stamps, and finally a much-lampooned limit on the size of sugary drinks. His efforts were ultimately rejected, with critics decrying the moves toward a "nanny state."

The strategy worked in Britain, where a new soft drinks levy was announced in March after officials emphasized the country's obesity crisis, saying it cost the economy billions of pounds annually and was a huge burden on the state-funded health system.

That approach never worked in Philadelphia. Michael Nutter, the previous mayor, twice tried to pass a soda tax as a health initiative and as a way to plug a budget shortfall. He was unable to push it through the city council.

"Twice before it was used in Philadelphia and it was not successful. It was used in New York and it was not effective," said Kenney, adding that while the health benefits of a tax are not "less important," they are less tangible.

Kenney, who became mayor in January, had made a campaign pledge to provide universal pre-kindergarten, and he kept that issue as his focus. A spokeswoman said complex state laws on taxation made enacting a citywide soda tax the best option to raise revenue for that signature proposal.

Bloomberg personally contributed funding to support Philadelphia's pro-tax campaigners.

FIZZING WESTWARD

Opponents of Philadelphia's soda tax argued that the measure will disproportionately hurt the poor and prompt Philadelphians to travel to nearby suburbs to buy soda.

A spokesman for No Philly Grocery Tax, a local ABA-funded group, said it would sue the city to stop it from imposing the "unconstitutional" tax, but was still analyzing all its legal options. In a statement, it called the tax "regressive and discriminatory."

Kenney said the city was prepared to defend the tax in any litigation from the beverage industry.

"It's the precedent that they were so staunchly fighting, and that's their problem now," Kenney said. "You're going to see the beginnings of a kind of domino effect relative to this specific effort."

In Colorado, Boulder hopes to use soda tax revenue on health programs, and San Francisco and Oakland officials would recommend but not require funds raised to go toward obesity and diabetes prevention.

When Berkeley passed its soda tax in 2014, industry groups dismissed the measure as a fluke given the city's largely white population and reputation as a hotbed for liberal measures.

But Philadelphia is the fifth-largest U.S. city, with 1.6 million people. "No one can trivialize it as they can trivialize Berkeley," said Larry Tramutola, a California political strategist who worked on the Berkeley campaign and is currently leading the San Francisco and Oakland efforts.

(Additional reporting by Melissa Fares in New York; Editing by David Gregorio and Dan Grebler)