Pennsylvania’s budget woes will deepen with aging population
HARRISBURG — Pennsylvania state government is facing perhaps its most difficult budget dilemma since the recession, and demographic trends will provide no relief in coming years.
Already one of the nation’s oldest states, the growth of Pennsylvania’s retirement age population is projected to balloon in the coming decade, while its working-age population shrinks.
The projections, by the Pennsylvania State Data Center, were cited by the Legislature’s nonpartisan budget analyst, the Independent Fiscal Office, as it assesses the state’s fiscal future.
That immediate future involves a roughly $3 billion two-year projected deficit, compared with a $31.5 billion approved budget for the fiscal year ending June 30. Much of the deficit is driven by lackluster tax collections, making good on long-overdue pension obligations and rising costs for health care and prisons.
A shrinking proportion of working-age Pennsylvanians isn’t helping.
“A dimension of the budget deficit we face is specifically the demographic shift,” said Mark Price, a labor economist at the Harrisburg-based Keystone Research Center, a labor union-affiliated think tank.
In Pennsylvania, retirement income — such as pensions and Social Security — is not subject to the state’s 3.07 percent income tax. That means that income tax collections will slow as more people leave the workforce and live off retirement income.
Meanwhile, older people tend to shift their spending habits away from durable goods to services, Price said. That means sales tax collections will suffer, since durable goods are more likely to be subject to Pennsylvania’s 6 percent sales tax, while services are less likely to be subject to the tax, Price said.
It also has ramifications for spending demands.
The cost to care for the elderly often fall on the state, such as on Medicaid, which pays for most of the nursing home residents in the state. That will put more strain on services.
“With an older population, you are spending a lot more on end-of-life care, which is a major expenditure as people transition to that stage of life,” Price said.
More demand for services for the elderly will compete for state dollars for other services, such as public schools, he warned.
To some extent, Pennsylvania’s demographic projections continue a trend that was already happening. But the Pennsylvania State Data Center’s projections show the trend steepening.
For example, from 2005 to 2015, the number of Pennsylvania residents ages 20 to 59 largely stayed the same, shrinking by 2,000. The number of residents 60 and older grew by 540,000, or roughly 22 percent, the data center said.
Under the data center’s projections, the number of Pennsylvania residents ages 20 to 59 will shrink by 214,000 from 2015 to 2025, or about 3 percent. But the number of residents 60 and older will grow by 711,000, or almost 24 percent, the data center said.
Where there were about 10 million residents under 60 in 2005, there will be fewer — about 9.5 million — in 2025, according to the data center’s projections. Meanwhile, the number of people 60 and older will have risen by about 50 percent, from a little under 2.5 million to more than 3.7 million, it projected.