The Independent Fiscal Office released its economic outlook and state revenue forecast on Wednesday adding more bad news to the state’s budget situation. State revenues under the current structure will increase only 3.3 percent a year from FY 2015-16 to FY 2020-21, while expenditures will increase by 4.5 percent annually.
The main cost drivers everyone knows-- pension contributions and healthcare will drive costs as well as a 31.5 percent increase in the number of residents 65 and over in Pennsylvania. At the same time, the number of residents age 20 to 64, the main labor force, will contract by 2.9 percent.
Pension costs alone are expected to increase $1.2 billion above current levels.
The IFO concluded, “The structural imbalance grows each year as tax base expansion is insufficient to maintain the level of real services provided in the current fiscal year.”
General Fund revenue forecasts by the IFO show FY 2015-16 revenues of $30.9 billion, $31.5 billion in FY 2016-17, $32.7 billion in FY 2017-18 to $36.3 billion in FY 2020-21.Click Here for a copy of the full report. Click Here for a copy of the IFO presentation.
Specifically on the FY 2015-16 General Fund budget based on House Bill 1460, the IFO said $318 million would be needed this year to balance that budget and $600 million more for the “agreed-to” $30.2 billion budget.
Assuming the budget in House Bill 1460 is final, the IFO says the state is facing a structural deficit of $1.3 billion in the next budget in FY 2016-17 without any changes to taxes or adoption of cost reduction measures.Going forward, the IFO said the cost of Gov. Wolf’s expansion of the Medicaid program will begin to hit the budget in FY 2017-18 on top of everything else.
The IFO highlighted projected revenue declines from DCNR’s Oil and Gas Lease Fund in its report since DCNR is so dependent on those revenues for operating expenses in the face of a significant decline in General Fund support (page 46).
Oil and Gas Lease Fund revenues are expected to drop by 38 percent in the current FY 2015-16 to $71 million from $115 million last fiscal year. Revenues will increase slowly in the coming years and not recover to $118 million until FY 2018-19 (page 73).In FY 2014-15 the Oil and Gas Lease Fund supported $122.6 million in operating costs and the General Fund only $14.5 million. In FY 2008-09 the General Fund support for DCNR was $113 million and Oil and Gas Lease Fund revenue $11.8 million, nearly the reverse.