Mayor Nutter and City Council are about to enter the backstretch of the budget season debating a menu of tax increases, offered to bail out the struggling schools, that are both unpopular and politically challenging.

Some Council members and business leaders are warning against the impact of one option - increasing the use-and-occupancy tax, a hybrid property tax aimed at businesses, for the second year in a row.

And a second possible solution - jacking up the liquor-by-the-drink tax and creating a city cigarette tax - has not been embraced by state lawmakers who would have to give the city permission to raise those "sin" taxes.

In an opinion piece in Sunday's Inquirer, Rob Wonderling, president and chief executive of the Greater Philadelphia Chamber of Commerce, urged the city not to raise use-and-occupancy again, saying such tax increases have a "chilling economic effect."

Joe Grace, the chamber's director of public policy, said Friday that "for that to happen again, we think it impacts jobs. We think it impacts tenants, who get [the tax increase] passed on to them."

Wonderling was joined in his opinion by Steven Bradley, chairman of the African American Chamber of Commerce.

Last week, Councilman Bobby Henon introduced legislation that would exempt manufacturers from the use-and-occupancy tax.

Henon was instrumental in getting a manufacturing task force established this year to address the concerns of the sector, which he maintains are overlooked.

"The city needs to continue to be serious about manufacturing," he said. "We need to send a message, not to be cliched, that we are open for business."

In testimony earlier this month, Wonderling told Council that the chamber was willing to "work with you to gain support for the mayor's proposals in Harrisburg."

Nutter said his proposed liquor and cigarette taxes would raise $95 million for the schools the first year and $135 million the second.

The liquor tax would go from 10 percent to 15 percent, and the cigarette tax would add $2 to the price of a pack in the city.

The school district has sought an additional $60 million from the city and $120 million from the state, along with union concessions, to fill a $304 million spending gap in the next fiscal year.

The sin-tax increases are likely to face stiff opposition from bar and restaurant owners, a group that frustrated a city smoking ban for years and still has the ears of many Council members.

(Of the liquor tax, Henon said Friday: "I'm not feeling it at this time.")

Council last week nonetheless introduced two bills from Nutter to raise the liquor tax and create the cigarette tax. Council President Darrell L. Clarke noted that passing the bills essentially was meaningless unless the state moves enabling legislation, which has not yet been introduced.

After Nutter proposed the sin taxes, Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi (R., Delaware), called their path to passage an "uphill climb."

Lawmakers return to Harrisburg this week for the first time since Nutter made his proposals, and members of the Philadelphia delegation have promised to push hard for them.

Friday, Arneson had not changed his assessment.

"Without the benefit of a caucus discussion on the issue, I can still only offer my own thoughts," he wrote in an e-mail. "And uphill climb remains a fair description."

Contact Troy Graham

at 215-854-2730 or tgraham@phillynews.comm,

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