Lopsided I-1634 campaign, with millions from soda industry, blankets airwaves

The most lopsided campaign on Washington’s November ballot is a microcosm of the battle the soda industry is waging across the country.

Initiative 1634, backed to the tune of $13 million by a soda-pop industry that sees a threat to its profits in a growing wave of regulation, would ban local taxes on any food or beverage or ingredient intended for human consumption. The campaign echoes a similarly well-funded effort that took out a smaller statewide soda tax eight years ago.

The I-1634 campaign is blanketing the airwaves with advertisements that raise the specter of looming local grocery taxes, while making little or no mention of the sweetened beverages produced by the companies funding the campaign. The public-health advocates opposing I-1634 — on a shoestring budget — say the rhetoric about grocery taxes is an attempt to disguise the real purpose of the initiative and its funders.

Seattle’s sweetened-beverage tax, which raised $10.5 million in its first six months, is designed to discourage consumption and fund health and education programs. It has rankled Seattle retailers who say it is costing them business as consumers go outside the city limits to buy their beverages.

While I-1634 would not repeal the Seattle tax, which took effect Jan. 1, it would ensure that no other Washington cities can follow suit, and would stop any increases in Seattle beyond the current rate of 1.75 cents per ounce.

When Seattle’s sugary-drink tax is mentioned in I-1634 campaign ads, it’s often abbreviated and paired with images that overstate the scope of the tax. In one spot, a mom in the grocery store looks at a container of milk while a narrator talks about Seattle’s “huge new beverage tax.” In fact, milk-based beverages are explicitly exempted.

Proponents originally sought a ballot title that included the word “groceries,” but a judge changed it to “certain items intended for human consumption.”

The focus on local taxes, say opponents of I-1634, hews closely to a strategy employed by the tobacco and gun industries to limit the powers of local government, over which they have less political influence, to regulate them.

“This is an existential battle for the soda-pop industry,” said state Sen. Reuven Carlyle, D-Seattle, who opposes the initiative. “They know that they are now in the same light as tobacco, fossil fuels and other products that have negative externalities and affect public health.”

Earlier this year, lawmakers in Michigan and Arizona enacted bans on local food and beverage taxes. In California, where a handful of cities have enacted sweetened-beverage taxes, the soda industry threatened to bring a statewide initiative to the ballot that would have required a two-thirds majority to raise local taxes of any kind unless the Legislature put a moratorium on local food and beverage taxes, which it did. Oregon voters will decide in November on an initiative backed by a soda industry trade group and grocery chains with similar goals.

The campaign backing I-1634 says it will close a “loophole” in Washington law that allows local jurisdictions to tax groceries – though not through sales taxes. Sales taxes on groceries were eliminated by a 1977 initiative, but local jurisdictions can still tax food items through other means. Seattle’s sweetened-beverage tax, for instance, is structured as an excise tax on businesses distributing the drinks.

The campaign’s ads suggest that other Washington cities are considering sugary-drink taxes and that taxes on beef, dairy or other groceries could be next. There are few if any examples, however.

“We aren’t aware of anybody else who has a tax that would be impacted by this initiative or who had been contemplating one,” said Sheila Gall, general counsel of the Association of Washington Cities, which does not take a position on political campaigns.

But the grocery industry is an easy target for new taxes, said Paul Kapioski, owner of the West Seattle Thriftway and chairman of the Washington Food Industry Association, which gave $20,000 to the I-1634 campaign, the only contributor besides the soda industry. Grocery taxes would exacerbate an already regressive tax code in Washington, hitting low-income people hardest, he said, and soda taxes could be just the beginning as policymakers try to change consumer behavior.

“It only takes one city or one group of people to say here’s another area that we can target,” he said.

Kapioski argues that taxes like this, if they happen at all, should be implemented on a state level, both for efficiency in administering the tax collection and so that grocers in one jurisdiction don’t lose business to competitors in nearby non-taxed jurisdictions. That’s already happening with soda-pop sales for Seattle businesses, particularly those near the edge of the city.

“We’ve definitely seen a drop in sales in that category,” said Kapioski, whose store is about a mile and a half from White Center, which has no tax. “There is some crossover there where people will drive outside of the city limits and buy it substantially cheaper.”

If I-1634 passes, Seattle businesses would continue to have a price disadvantage compared to competitors in adjacent cities. That was news to some of the 1,300 people and businesses listed as endorsers on the yes campaign’s website, including Aychu Aweke, at a 7-Eleven at the city limits in northeast Seattle.

“Across from [my] store, McDonald’s, no tax. Taco Bell, no tax. Mine, soda tax. I have to increase my price and people don’t come to my store,” Aweke said. “That hurts my business.”

Aweke said he thought I-1634 would repeal the Seattle tax. When told it wouldn’t, he said, “You called the wrong person.”

He wasn’t clear on how his name had been added to the list of I-1634 endorsers – which includes small businesses and restaurants, farm groups and the Teamsters Union, which has many members in the soda industry – but other people on the list said representatives from their soda distributor asked them to sign-on, and that they knew the initiative would leave Seattle’s tax in place.

Henry Kim at Rotary Grocery in Pike Place Market said he didn’t want to see other businesses hurt by the soda tax. “No other victims for Washington state,” he said.

While some individual businesses report lost sales due to Seattle’s tax, it’s unclear yet whether the tax is discouraging sweetened beverage consumption or just shifting purchases to other cities.

The soda companies funding the I-1634 campaign — The Coca-Cola Company, PepsiCo, Keurig Dr. Pepper and Red Bull North America — either did not respond to questions about how the Seattle tax has impacted overall Washington sales or declined to comment.

The companies have for years been concerned about taxes on their products or ingredients, calling that out among their “risk factors” in securities filings. Coca-Cola’s latest annual report states, “Obesity and other health-related concerns may reduce demand for some of our products.” It goes on to note that taxes on sweetened beverages aiming “to reduce consumption or to raise revenue … could adversely affect our profitability.”

Voters will have more than anecdotal data about the impact of Seattle’s soda taxes before they vote Nov. 6.

Researchers at the University of Washington and Public Health – Seattle & King County are studying several impacts of Seattle’s soda tax, including the extent to which the cost is passed on to consumers. Results on that question for the first half of the year are due Oct. 22, said Jesse Jones-Smith, a UW obesity epidemiologist, co-leader of the research team tasked by the city to evaluate the tax.

Additional research will focus on whether the tax has changed attitudes about and reduced consumption of sugary beverages, whether small food stores in Seattle have lost sales and whether people change buying patterns at supermarkets based on the tax, Jones-Smith said.

Their research will join a small but growing body of analyses that have followed a wave of new soda taxes around the country and abroad. These new taxes differ from state-level soda taxes that have been around for decades in that they are mostly imposed by cities and are explicitly designed to raise the price for consumers in order to reduce consumption.

In one study, researchers found that sweetened-beverage sales had fallen 9.6 percent a year after Berkeley implemented the first large soda tax in the U.S. – 1 cent per ounce – in November 2014. The study found overall beverage sales did not decrease, leading researchers to conclude that sweetened beverage taxes “may be effective in shifting consumers to purchase healthier beverages without causing undue economic hardship and while raising revenue for social objectives.”

In Philadelphia, which began taxing sweetened beverages at a rate of 1.5 cents per ounce in 2017, residents reported lower consumption compared to nearby cities, according to phone surveys conducted for Drexel University researchers.

“Taxation is probably our most powerful policy lever that we could pull in terms of really trying to shift use patterns with these risky products,” said Vic Coleman of the Washington Healthy Kids Coalition, which opposes I-1634. The opposition campaign has raised $7,650, mainly from the Foundation for Healthy Generations, a Seattle nonprofit, and the American Cancer Society.

Coleman hopes people will weigh the potential public health benefits before voting to restrict cities’ taxing authority.

The link between sweetened beverages and obesity, diabetes and other major health concerns was only just coming into focus the last time a beverage tax came before Washington voters.

In 2010, the Legislature passed a carbonated-beverage tax amounting to 2 cents per 12-ounce container – a fraction of the Seattle rate – part of a three-year package of temporary tax increases that were also levied on candy and bottled water to help fill a state budget deficit.

That year, the soda industry poured a then-record $16 million into a successful initiative campaign to repeal the tax.