Lawmakers think drink tax could save struggling Pennsylvania cities
For Pennsylvania's down-and-out communities, relief could come from drinks at the bar.
Lawmakers in Harrisburg want the state's Financially Distressed Municipalities Act to allow cash-strapped cities under the law, known as Act 47, to impose up to a 10 percent tax on alcoholic drinks to stabilize their finances.
It's a solution modeled in part on Allegheny County's drink tax, which angers tavern and restaurant owners but has raised $156 million between 2008 and 2012, and is expected to bring in $34.6 million this year.
“It's better than doing a property tax, where everyone gets hit,” New Castle Mayor Anthony Mastrangelo said, adding that an increase in property tax would put seniors living on fixed incomes in a bind. “This way, if you drink, you pay.”
Under Act 47 oversight since 2007, the Lawrence County city struggles with debt, pensions and stagnant revenue. If a drink tax could add $2 million to shore up New Castle's $16 million budget, “that wouldn't be too bad,” Mastrangelo said.
The legislation, developed by a task force and introduced in the House on Oct. 17, would give 21 municipalities — including New Castle, Aliquippa, Johnstown, Reading, Altoona and Harrisburg — the ability to levy a drink tax instead of increasing earned income or property taxes. Allegheny County and Philadelphia could not impose an additional drink tax.
The legislation would allow an increase of the local services tax or a payroll preparation tax.
“What we were looking for was to provide a bit more flexibility to municipalities,” said Rep. Chris Ross, R-Chester, who introduced the bill and co-chaired the task force that developed it. “It's important to try and give municipalities alternatives so they can work their way out of their distress.”
The 21-member task force included four elected politicians — two Republicans and two Democrats — and 17 members representing municipalities, police, firefighters, bankers, attorneys and development experts. It did not include anyone from the food and beverage industry.
“Obviously, we're not going to like it,” said David Sapolich, owner of Phoenix Tavern in Johnstown, where a pint of beer costs $2.25. Johnstown is one of 21 financially distressed municipalities in Pennsylvania. “ 'Round here, people will feel it. We are a depressed area, so they are going to feel it.”
Mexican War Streets residents Matt Napper and Diana Purcell, both 31, said the drink tax isn't a factor for them as they sat down for drinks at Jerome Bettis Grille 36.
“I don't think about it,” Purcell said.
Restaurant industry groups and bars owners aren't as blase. They've urged the bill's sponsors to strip the drink tax provision from the final version.
“Most of our Act 47 communities do not have the administrative capacity to do this, and I don't think it's an option they would choose,” said state Sen. John Blake, D-Scranton, who chaired the subcommittee.
Sen. John Eichelberger, R-Altoona, a task force co-chair, questioned whether a drink tax in small communities would generate enough money to make it worthwhile.
“There's a better than even chance that it will be taken out,” Eichelberger said.
The task force offered the tax as an additional tool, said member Dick Hadley, executive director of the Allegheny League of Municipalities. He said the recommendation is based on the results from Allegheny County, where the 7 percent tax helps fund public transit.
Sen. Jay Costa, D-Forest Hills, said other Act 47 communities could duplicate the success of the tax in Allegheny County.
“If they don't think it's appropriate, then don't do it,” Costa said.
Fears of huge losses for bars and restaurants and patrons fleeing across county lines for drinks when the tax started in 2008 did not materialize, Hadley said.
Revenue from the county's drink tax is climbing. Projected 2013 revenue will top 2012 by nearly 12 percent, according to figures county Treasurer John Weinstein presented to the county council's budget and finance committee. The tax raised $31 million in 2012 and could raise $3.6 million more in 2013.
Despite being unpopular among bar owners, only 35 of Allegheny County's 2,000 bars are delinquent on drink tax payments. Some have not paid drink taxes in years, leading to lengthy court proceedings and padlocked tavern doors, said Bob Miecznikowski, manager of the county's special tax division.
The county has padlocked 39 bars or restaurants since 2008. The most recent, Parrott's Pub in Spring Garden, remains closed for failing to pay $17,690 in back taxes. Some delinquent bars owe between $25,000 and $35,000, according to court filings. Esta Esta in Monroeville hasn't paid its drink tax since 2010 and owes nearly $44,000, according to a court judgment in August. The restaurant's owner could not be reached.
Philadelphia's 10 percent drink tax raised $51.5 million in 2012 for the city's public schools system. Enforcement of the tax was lax until recently, Revenue Commissioner Clarena Tolson said.
The city has about as many bars and restaurants as Allegheny County but has about 1,200 delinquent businesses. Many are delinquent because they've closed.
Since May, Philadelphia has threatened to close about 400 bars or restaurants. Forty-five refused to pay their overdue taxes and lost their licenses. Of those, 16 quickly paid up in order to reopen, Tolson said.
“It's an accepted issue,” Hadley said of Allegheny County's drink tax. “But if you bring it up to someone and ask, ‘What do you think about the drink tax?' they're going to say, ‘I don't like it.' ”
Bill Cotter, owner of Game-room Lounge in Munhall, doesn't like it.
“I've been here 26 years. It's the worst thing that ever happened to me,” Cotter said, noting the tax skims up to $1,000 a month off his profit.
John Graf, president of the western chapter of the Pennsylvania Restaurant and Lodging Association and owner of The Priory, a banquet center and hotel in the North Side, said an Allegheny County-style tax might be too much for bars and restaurants in Act 47 communities to swallow.
“If they're on the edge, this is going to put them out of business,” he said.
Aaron Aupperlee is a Trib Total Media staff writer. Reach him at 412-320-7986.