Taking Stock

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Food Industry Continues To Serve As Politicians’ Economic Whipping Boy

A $15 an hour minimum wage for Baltimore City? Baltimore City? A one-and-a-half cents per ounce tax on both sweetened and artificially sweetened beverages in the city of Philadelphia?

After years of taking it on the chin (in smaller doses), the past few months have served as living hell examples of what happens when needy municipalities and their politicians engineer tax plans at the expense of the grocery industry to fill a need that only marginally applies to those being penalized.

In the case of the $15 an hour minimum wage, that bill came closer to becoming law as the Baltimore City Council earlier this month approved the measure by a 12-3 margin. That bill now moves closer to the desk of new Baltimore Mayor Catherine Pugh, who had earlier expressed support for the measure, but more recently has cited the bill’s potential adverse impact on businesses.

She should be concerned. Although wages would increase on a step basis (with the $15 an hour level reached in 2022), all food retailers that operate both in Baltimore City and in other jurisdictions acknowledge that operating city stores is significantly more costly than running supermarkets in adjacent jurisdictions. In fact, the $15 an hour rate would eclipse the rate of all the surrounding counties to the City by almost $5 an hour.

After speaking with several retailers who attended the hearing, their disappointment was obvious, claiming that it was clear in their minds that many of the council members paid little or no attention to the challenges supermarkets face operating stores in a city where population is declining, crime is increasing and the margins in their core business have never been big.

A couple of retailers noted that the comments of Councilman Bill Henry were particularly insensitive and off base.

“If your agenda is to ram the ‘need’ for $15 an hour minimum wage down our throats, from a socio-economic perspective, I intellectually understand that view, although I disagree with it from my job as a small business owner,” said one independent retailer. “But to imply that my salary is somehow connected to his agenda to raise money for the city by any means, is plain wrong and insulting. I work hard every day and have created a lot of jobs for Baltimore City residents for many years. His level of entitlement was disingenuous and his attitude was certainly disrespectful.”

Ninety miles to the north in Philadelphia, the battle has left the legislative chambers and the horror show is now playing out daily at supermarkets all over the city. While the soda tax is different from the minimum wage issue, its genesis is similar: “Our city needs more revenue (a sad reality), we can’t create enough incentive for more business opportunity, so let’s punish those businesses that have rewarded us for years with jobs and revenue.”

In this case the social/moral argument gets thrown in, too – “There’s too much obesity, so let’s target the purveyors of fat.” In my view, it is the consumers who make unenlightened choices. But, don’t blame them, because it is their right to choose – I don’t believe that law has ever been challenged, much less overturned.

Unsound logic or no logic at all? It doesn’t matter, because food retailers and beverage manufacturers and distributors are bearing the sole burden. And it’s really a big burden when you consider that beverage sales have diminished about 50 percent at Philadelphia stores since the law went into effect on January 1. More than 3,000 items are now eligible to be taxed, including flavored waters, sports drinks, teas and lemonades.

And as often happens, the lawmakers (City of Philadelphia) played the social sympathy card by noting that most of the estimated $90 million of revenue (Mayor Jim Kenney’s projection) amassed from the soda tax would be directed to pre-kindergarten related improvements.

First of all, the $90 million tax gain was a fantasy land number from the beginning. Now with soda (and related products) consumption down so significantly, the city will be fortunate to raise even half of its false estimate. And even at that, what will be the final dollar contribution to those pre-K needs?

I sense these two events (and other legislative shakedowns in other cities) have awakened the sleeping giant.

In Philadelphia, Pepsi and Canada Dry have announced job layoffs, as have several retail organizations. Expect more of the same from others as well as the diminishment of service levels to occur very soon.

Also on the docket shortly will be the industry lawsuit claiming that the soda tax is actually illegal because it creates a “double taxation” standard that conflicts with Pennsylvania’s existing 6 percent sales tax. This time, the case will be heard at the state Supreme Court level in Harrisburg, not in front of a hometown judge from the Philadelphia Court of Common Pleas, who dismissed the case without even a full hearing.

In Baltimore, if the minimum wage law is enacted, the results will be similar, or perhaps even more painful. After years of trying to entice supermarkets to enter its underserved municipality and fill the void of food deserts, those efforts could be quickly undone.

Trust me, it won’t be a big stretch for not only those new entries to vacate Baltimore City but other merchants that have operated stores in Baltimore City for years to significantly decrease their workforces and possibly abandon operating in the city altogether.

Baltimore, Philadelphia, DC, Chicago, Los Angeles, Seattle, San Francisco – the industry message is becoming a lot clearer – “We’re mad as hell and we’re not going to take it for much longer.”