The Drink Tax: For the Port Authority’s Use Only

When it became apparent that the Drink Tax and Rental Car Tax would be collecting will in excess of the amounts budgeted (underbudgeted, actually) for the Allegheny County funding subsidy for Port Authority (for 2008, the County needed $27.5 million, budgeted $32 million, and will collect at a minimum $44 million), County Executive Dan Onorato and his allies on the Allegheny County Council decided that the County could use the interest on Drink Tax collections, along with any monies collected over the amount needed for the Port Authority subsidy, on non-Port Authority expenses.  The County budget for 2009 reflected this wish.

While ostensibly for the construction of “roads and bridges” (part of a “transit system”), in fact the excess collections were to be used to pay interest on bonds for projects completed as far back as 1999.  Since money is fungible, the commitment of the Drink Tax funds to debt payments (which have to be made in any event), simply frees up other funds to fund anything the County would want – from raises and more bloated benefit packages for county employees to pet construction projects of County Council members.

This plan was stopped in its tracks by a group of individual restaurateurs, the trade group Friends Against Counterproductive Taxation (FACT), and the County Councilman Chuck McCullough.  The group filed suit against the County in late December seeking an order enjoining the County from spending Drink and Car Rental Tax funds for anything but Port Authority.

Although Dan Onorato called the lawsuit “frivolous,” Allegheny Court of Common Pleas Judge Judith Olson issued an order on January 2, 2009 granting the injunction and preventing the County from expending Drink and Car Rental Tax monies for anything but Port Authority.  The Judge’s 25 page opinion was immaculately annotated, and very tightly reasoned.

Although the County Solicitor, Michael Wojcik, and County Council President, Rich Fitzgerald, both stated that the County would need to raise property taxes if not permitted to use the Drink Tax monies for general budget expenditures, on January 5, 2009, Executive Onorato held a press conference at which he announced that the County would not be raising property taxes and that the County would not appeal the order of Judge Olson (so much for the frivolity of the lawsuit).

At the same conference, Executive Onorato announced that he planned to use the excess collections not to reduce the rate of taxation, but would instead commit them directly for Port Authority capital projects. This, of course, is a virtual thumbing of the nose at the citizenry of the County, who have repeatedly demanded the tax be lowered, rather than see revenues go to a wasteful and inefficient Port Authority.

Partial Victory: Drink Tax Lowered to Seven Percent

It wasn’t everything anybody wanted, but it was better than nothing.  Facing withering criticism from citizens of the County, County Council in December 2008 passes a budget which reduced the Drink Tax from 10 percent to 7 percent, representing a year’s worth of hard work by advocates working to reduce or eliminate this harmful tax.

Referendum Update

The trade group Friends Against Counterproductive Taxation (FACT) gathered in excess of 45,000 signatures to put a referendum on the November 2008 ballot which would ask the voters of Allegheny County to roll back the Drink Tax to .05%.  While the Allegheny Court of Common Pleas and Pennsylvania Commonwealth Court both ruled that the referendum could not proceed forward, reasoning that a state statute barred the adjustment of tax rates by referendum, the Pennsylvania Supreme Court has accepted FACT’s appeal of those decisions (the Supreme Court accepts very few petitions for appeal, so this and of itself is a victory).  Briefs for FACT were due on December 22, while County’s brief is due on January 22, 2009.  Oral argument before the Court will occur some time thereafter.

Birth of the Tax

In December 2007, at the urging of Allegheny County Chief Executive Dan Onorato, County Council passed an ordinance imposing a 10% tax on the cost of all alcoholic beverages sold at retail.  The Drink Tax was passed by a 10 to 4 margin, with one member abstaining.  These council members passed the Drink and Rental Car Taxes despite massive opposition from citizens and business groups.

The following members of council voted in favor of the Drink Tax:

Rich Fitzgerald (D – Squirrel Hill)

Charles Martoni (D – Monroeville)

Joan Cleary (D – Clairton)

William R. Robinson (D – Hill District)

Bob Macey (D – Duquesne)

Jim Burn (D – Millvale)

Brenda Frazier (D – Stanton Heights) (resigned Feb. 2008)

Mike Finnerty (D – Carnegie)

John DeFazio (D – At Large)

Dave Fawcett (R – At Large) (Term Expired Jan. 2008)

Shortly thereafter, Dan Onorato, not surprisingly, passed the Drink Tax into law.  The tax was implemented on January 1, 2008.  The Drink Tax applies to:

• All sales of beer, wine and spirits at restaurants, taverns, private clubs (including fraternal and ethnic organizations such as the VFW, Loyal Order of Moose, Ukrainian Club, etc.);
• All sales of six packs for take out from restaurants and bars (conversely, cases sold from distributors are not subject to the Drink Tax);
• All sales of alcoholic beverages for weddings, banquets, and other events;
• All sales of alcoholic beverages for charity fundraisers.