Philly's fund balance takes center stage in soda-tax debate

Council President Darrell L. Clarke talks with Bill Greenlee, Blondell Reynolds Brown and Maria Quinones-Sanchez as the Committee of the Whole prepares to vote on the soda tax.

A rather arcane element of the city's finances loomed large Thursday.

The fund balance - the money available in the city's annual operating budget - first rose to prominence Wednesday when the Kenney administration acknowledged it would benefit from the 1.5-cent-per-ounce tax on sweetened drinks and diet beverages passed out of a City Council committee that day.

While some Council members said that concern for the health of the fund balance helped secure their vote, several were upset by what they saw as a last-minute surprise from the administration. The anti-soda-tax forces argued that that was reason enough to stop the tax. And the administration pushed back Thursday, saying the soda tax was always going to provide money to increase the depleted fund balance, at least temporarily.

The proposed tax on sweetened drinks and diet beverages would bring in $91 million annually. The administration has said it would fund prekindergarten expansion, the creation of community schools, and improvements to parks, recreation centers, and libraries. Because those programs would take time to ramp up, the tax would generate more money than would be spent in the first three full years it was implemented.

As a result, the administration said Wednesday that an additional $24 million would be directed through 2020 to bolster the fund balance, which has dropped from $150 million last year to $70 million this year.

Fund balances are closely followed by bond-rating agencies. The lower a fund balance, the more expensive it is to borrow money. The city already pays up to $27 million more to borrow because of its less-than-perfect ratings compared with top-rated towns.

The administration is predicting a fund balance of $33.7 million in fiscal 2017. The recommended amount for 2017 is about $246 million.

Some Council members said they did not know about the connection between the soda tax and the fund balance until Wednesday afternoon.

"A lot of us were seeing if we could keep the tax a little lower, if possible, and the numbers were not adding to what they were saying they needed and what we thought we were providing. And then it was disclosed - the fund-balance issue," Councilman William K. Greenlee said Thursday.

The improved fund balance helped sway at least one vote - that of Councilman Allan Domb.

Domb said he and some other members were in favor of a lower tax rate until he understood the connection to the fund balance.

"I decided I would go to the 1.5 in order to avoid a low fund balance, which was dangerously low," Domb said, "which, by the way, would cost us more if Moody's downgraded our bonds again."

Part of Kenney's ambitious plan to revamp many of the city's recreation centers, parks, and libraries is to borrow $300 million to help pay for the costs.

While the administration has said that the fund balance is well below the recommended levels, a Kenney spokesman said Thursday that the soda tax was not specifically designed to shore it up.

"It was never the intent of the mayor's original proposal nor of the revised plan approved by Council committee to pad the fund balance," spokesman Mike Dunn said.

Nevertheless, critics were quick to jump on the fund balance to argue that the administration had been misleading in its pursuit of the tax.

"It's evident now that the Kenney administration pulled a bait and switch on Council and the citizens of Philadelphia," said Danny Grace, secretary of Teamsters Local 830, which represents bottlers and truck drivers. "The tax isn't all about the kids, as they pledged. It's about paying down the city's debt service."

Council President Darrell L. Clarke said Thursday that the fund balance came up only this week, when Council was asking for detailed numbers.

"There was an acknowledgment that the need for the additional money, particularly in the early years of these funding initiatives, was to support the fund balance," Clarke said. "It was never the nexus between that and the tax until recently."

Now, he wants to take a deep dive into the city's fiscal health. Clarke introduced a resolution Thursday calling for hearings to examine the city's new revenue stream and how it's applied, including the fund balance.

cvargas@phillynews.com215-854-5520@InqCVargas

Staff writer Joseph N. DiStefano contributed to this article.