UPDATE 1-New York governor defends soda tax

* Paterson says tax needed to cover costs to treat obesity

* Bloomberg says tax may raise $1 bln for health, schools

* Trade group says tax won't work, would jeopardize jobs (Recasts with governor's comments)

By Phil Wahba

NEW YORK, March 8 (Reuters) - New York State should tax sugary soft drinks to curb obesity and recoup some of the billions of dollars it spends each year to treat people with diabetes and other diseases, Governor David Paterson said on Monday.

"Someone has got to contribute to the $7.6 billion the state spends every year to treat diseases from obesity," Paterson told reporters after speaking at a symposium in Albany about a tax on sweetened soft drinks.

In January, Paterson included a proposed soda tax in his budget plan for the second year in a row. Legislators rejected the measure last year. New York bottlers and vendors have protested it again this year.

Opponents repeated concerns that the tax would not improve public health and would harm businesses.

"New Yorkers know that taxes don't make people healthy, they cost jobs and hurt working families. This is a job-killing tax that will devastate grocers and other retailers," said Nelson Eusebio, chairman of New Yorkers Against Unfair Taxes, in a statement supported by a number of state senators.

The battle over taxing soft drinks has erupted in a number of U.S. states and cities.

In his weekly radio address on Sunday, New York City Mayor Michael Bloomberg urged state legislators to levy a tax of 1 cent per ounce on the sugary drinks.

"An extra 12 cents on a can of soda would raise nearly $1 billion, allowing us to keep community health services open and teachers in the classroom. And, at the same time, it would help us fight a major problem plaguing our children: obesity," he said, according to a transcript of his address.

Bloomberg, who spearheaded a ban on smoking in New York City bars and restaurants, would need the state's permission to impose a New York City soda tax.

Paterson did not dismiss eventually imposing a tax on other obesity-linked foods such as hamburgers and chocolate bars.

Last week, Philadelphia officials presented that city's fiscal 2011 budget. It includes a tax, which must be approved by the city council, that would charge retailers 2 cents per ounce of sugar-sweetened beverages including soda and sweetened juices, coffees, teas and sports drinks. [ID:nN03101569]

The American Beverage Association, whose members include Coca-Cola Co (KO.N), PepsiCo Inc (PEP.N) and Dr Pepper Snapple Group (DPS.N), has opposed efforts to tax soda.

"Taxes don't work for making people healthier," said Chris Gindlesperger, an association spokesman. "It puts good New York beverage industry jobs at risk." He estimated the beverage industry employs 160,000 people in New York state. (Reporting by Phil Wahba; additional reporting by Elizabeth Flood Morrow in Albany and Joan Gralla in New York; editing by John Wallace and Robert MacMillan)