Funding Philadelphia schools, one vice at a time

By Yaël Ossowski and Andrew Staub | Watchdog.org

Crushed by the burden of dwindling tax revenues and budget cuts, Philadelphia schools had their hopes set on a quick and easy cigarette tax to alleviate their financial problems.

But that bubble popped when state legislators ended their session for an August recess, canceling the tax hike and forcing Pennsylvania Gov. Tom Corbett to cash a $265 million check for Philadelphia schools Wednesday. It’s an advance on money schools were slated to receive later in the year, so they’ll still have to find a way to plug the $81 million budget hole.

“They’re going to have to be able to tax to make that difference up at the other end,” said Corbett on his monthly “Ask the Governor” radio program, reiterating the need for a structural change for Philadelphia’s finances to fund education.

That means the $2-per-pack cigarette tax is far from dead, and may get final approval when the Legislature heads back to work in September.

While the advanced funding helps reduce the short-term borrowing before tax revenue rolls in, district spokesman Fernando Gallard said it’s less of an issue than whether or not the district can afford to keep paying teachers and administrators throughout the year.

Three months of the fiscal year will have elapsed by the time when such a tax would be passed, meaning the tax might bring between $45 million and $60 million, Gallard said.

“If you take that into consideration, then the tax really is not even closing the $81 million gap,” he said.

While a higher cigarette tax would net millions for the school district, city officials also expect the revenue it generates would decline slightly over time as people buy cigarettes elsewhere or reduce the amount they smoke.

While it could bring in $83 million the first year, that number could drop to $72.7 million by fiscal year 2019, according to Mark McDonald, a spokesman for Mayor Michael Nutter.

“The decade-long cycle of funding increases simply hasn’t improved the plight of the real victims of the crises: children and parents looking for a hopeful future through quality education,” said Nathan Benefield, an analyst for the Commonwealth Foundation, in a press release. “To achieve this end, solutions beyond funding increases must be considered.”

To that end, it means moving beyond the vice taxes proposed by pinched politicians in Philadelphia and Harrisburg. This includes Nutter’s early plans to increase taxes on liquor and cigarettes, for which he hasn’t gained majority support even among his city council.

A 2009 study on liquor, cigarette and soda taxes by the Mercatus Center at George Mason University in Virginia found these tax hikes adversely affect minority communities and the poor. Researchers found they’re inefficient methods of raising solid revenue because they’re applied to such a narrow demographic.

Republican lawmakers across the state have also taken up this mantra as they fight against the proposed Philadelphia tax, remaining wary of pumping ever more money into Pennsylvania’s largest city.

Back in the mayor’s office, the focus remains on securing additional funding from every source possible.

“The mayor’s view is that we need new funds to bring the school district budget up to the level that it was last year, which was wholly inadequate,” said McDonald.

“All options are still on the table,” Gallard said, indicating the district has until Aug. 15 to make a decision on whether or not the opening of schools will be affected.