The Independent Fiscal Office Wednesday released its long-term economic and budget outlook for FY 2015-16 through FY 2020-21 saying the state faces a deficit of over $3.5 billion over the next two fiscal years under current laws and policies.
“Under current laws and policies, lawmakers face potential imbalances of $1.1 billion for FY 2015-16 and $2.4 billion for FY 2016-17.” Knittel said. “New policies or revised spending levels enacted with the FY 2015-16 budget will alter the projections.”
The report evaluates the demographic, economic, revenue and expenditure trends that will affect the Commonwealth’s fiscal condition through FY 2020-21. Based on assumptions used in the report, the evaluation finds that various factors contribute to a long-term fiscal imbalance.
The findings include:
— For FY 2017-18 through FY 2020-21, the rate of increase for pension contributions moderates and the imbalance begins to stabilize as net revenues and expenditures each increase at an average rate of 3.7 percent per annum.
— Pennsylvania’s economic growth over the next decade is constrained by the projected contraction of the working age population (ages 20-64).
— Demographic projections assume an increase of 32.2 percent in the 65+ cohort through 2025. The increase in this cohort will (1) restrain the growth of tax revenues (personal income and sales) due to the changing income and spending patterns associated with an aging populace and (2) increase state expenditures associated with the long-term care of the elderly.
Act 120 of 2010 created the Independent Fiscal Office to provide revenue projections for use in the state budget process along with impartial and timely analysis of fiscal, economic and budgetary issues.A copy of the report is available online.