Philadelphia's Cigarette Tax Can't Fund Schools Forever

The $2-per-pack fee is helping Philly schools, but the tax revenue will decline starting in 2016.
by | July 20, 2015 AT 3:30 PM

By Claudia Vargas

Moments after buying some Advil and bottled water at a Suburban Station newsstand, Serena Starnes realized that she was out of cigarettes. She quickly went back and paid $9.50 for a pack of Newports.

Had Starnes been in the suburbs, she would have paid much less because of the city's $2-a-pack tax earmarked for city schools. The extra $2 stings, but at least the money is going to help educate her children, the unemployed barber said.

"It's good because it's going toward the schools," the mother of nine said.

Multiply her spending by a hundred-thousand Philadelphia smokers and the cash-strapped school district has got a big chunk of what it needs. The latest figures from the state Revenue Department show that the $2-a-pack tax generated $50.2 million for the School District of Philadelphia in its first nine months, beginning Oct. 1. The net was pretty much on target with officials' projections.

And in the following year, which began July 1 and ends June 30, the tax is projected to bring in about $60 million.

After that, however, the tax will bring decreasing amounts, according to state and school district officials. They expect cigarette sales to decrease by 7 percent in 2016-17 an even more after that. In 2018-19, officials project, the tax will net the school district $53 million.

Even the school district's five-year plan shows the cigarette tax revenue declining each year.

The Department of Revenue estimates that before the tax was enacted, about 43 million packs were sold in the city every year, according to department spokeswoman Elizabeth Brassell. If that sales rate were maintained, the district would -- at $2 for each pack sold -- gain $86 million every year. Revenues are nowhere near that.

City Controller Alan Butkovitz, in a statement, called the tax "a Band-Aid to deal with the current funding emergency."

"It will not solve the school funding crisis," Butkovitz said.

There are signs that the numbers could shrink even more than the current estimates.

For one thing, most of the Philadelphia smokers and merchants interviewed for this article said the tax is driving cigarette sales to the near suburbs -- or driving smokers to buy "loosies," the illegal single cigarettes that sell for 75 cents to $1 each.

Health officials are also noticing that fewer people are smoking and that the number of calls to the smoking cessation lines have more than doubled since the tax started.

"More than half of the callers noted the increase in tax was the reason they were calling," Giridhar Mallya, director of policy and planning for the Philadelphia Department of Public Health, said Friday.

Smoking in Philadelphia is mostly concentrated among the poor. Up to 33 percent of the city's residents who live below the poverty line smoke, compared with 20 percent of the rest, Mallya said.

The tax hike could lead some of those living in poverty to finally quit, he said.

"Tax affects behavior in three ways. Some people are going to stop smoking . . . they might cut down on the number of cigarettes they smoke or they will go find them elsewhere," Mallya said.

Elsewhere seems to be the case.

Philip Yi works at 40 Stop Mini Mart, at 40th and Market Streets, where Newports sold last week for $9.25. But the market, just outside a stop on the Market-Frankford Line, can't compete with the stores just seven stops away at 69th Street Station in Upper Darby.

"They can go to 69th Street and go to City Avenue and not pay the tax," Yi said. "I don't blame them."

Cigarette sales at 40 Stop have dropped 60 percent since the tax went into effect, Yi said.

Even his coworkers who smoke don't buy cigarettes at the store, he said. What's more, potential cigarette customers have cheaper options just outside his door.

James W. Mitchell stood against the window of the 40 Stop last week smoking a cigarette and keeping his Newport pack visible. He was selling loosies for 75 cents each.

Mitchell, 73, who lives in West Philadelphia but buys his packs in Delaware County, said the $2 tax has been tough for people, "especially if you have a habit."

He's just helping out, he said.

Kelli Dougherty is a pack-a-day smoker but buying her own pack each day has become a challenge since the tax. What's more, she is in drug rehab and often can't get to the suburbs to buy cheaper packs.

"Sometimes I just have to buy loosies," she said while puffing on a cigarette last week while on Market Street.

But buying loosies is even more expensive than paying the $2 tax. Either way, health officials hope that the cost would drive people to quit. That strategy could work.

"My kids want me to stop. The price is going up. It's just time for me to stop," Starnes, the unemployed barber with nine children, said after paying $9.50 for her Newports.

(c)2015 The Philadelphia Inquirer