HARRISBURG - Demographics are destiny when it comes to state tax-and-spend policies in Pennsylvania, a new analysis by a state fiscal office reveals.
The report by the Independent Fiscal Office examines the fiscal impact of the continued aging of the Keystone State's population during this decade.
The number of working-aged residents between 20 and 64 will decline by 1 percent during the decade while the number of residents age 65 and older will increase nearly 27 percent, according to the report.
This will lead to diminished state income tax revenue while putting additional demand on the state-run Medical Assistance programs.
The graying of the state's population has been under way for several decades, but the goal of the IFO's report is to show how it will affect revenue collected from specific state taxes and spending on state programs during the next five years.
For example, an aging population can spur spending patterns that shrink the revenue collected from the state's six percent sales tax. Older individuals typically spend a higher proportion of their income on items that are not subject to the sales tax such as prescription drugs and professional services, the report said. They are less likely to purchase durable household goods subject to the tax such as cars and appliances.
Another factor potentially affecting sales tax revenue is the student-loan debt borne by graduates of colleges and universities. Pennsylvania has the second highest level of student loan debt in the nation with an average of nearly $30,000 owed, said IFO director Matthew Knittel.
"Student loan debt reduces disposable income and may prevent recent graduates from buying homes or other goods they might have otherwise purchased," the report said.
On the spending side, the report projects that state spending on long-term care will increase from nearly $1 billion this fiscal year to $1.3 billion in fiscal 2017-18 due to growth in the age 60-plus population.
Hanging over state finances is the projected spike in state pension costs for state government and school district employees.
For example, the state government contribution to school districts to meet pension obligations for retirees is expected to increase by $1.4 billion from this fiscal year to fiscal 2017-18. Local school districts will see their share of pension contributions rise, too.
Meanwhile, enrollment in public schools has been flat for the past decade and will see a minor decline during the next five years as the age 15-19 age group declines by nearly 3 percent by 2020, according to the report.
"School districts will face significant challenges over the next five years, despite the minor decline in projected school enrollment," the report said.
Gov. Tom Corbett and legislative leaders have said they will make curbing public pension costs a priority next year.
State Budget Secretary Charles Zogby will give a briefing next month on the outlook for the state budget for fiscal 2013-14. This is all a lead up to Mr. Corbett's budget address in early February.
Contact the writer: rswift@timesshamrock.com