IssuesPA

August 1 2005

Projected slow growth and an aging population – not exactly a recipe for a strong economic future in PA. What do the demographics and trends reveal? IssuesPA takes a closer look.

(August 2005) The latest U.S. Census Bureau population estimates aren’t favorable for Pennsylvania. The increase over last year was just 0.3%, significantly lower than the nationwide increase of about 1%. Pennsylvania’s total population has increased only 1% since the 2000 Census, compared to 4.4% nationally.

Will these trends persist? The Census Bureau predicts they will. Between 2000 and 2030, Pennsylvania’s projected population increase will be the 6th lowest in the nation. Continued slow growth isn’t a good sign, but a closer look at the demographic changes raises even more concern. Examine the table below to see how Pennsylvania compares.

     Percent of total population
Projections by major age group
2000-2030

Pennsylvania

 2000

 2010

 2020

 2030

Under 18

23.8%

21.8% 

 21.7%

21.5% 

18-64 

60.6% 

62.6% 

59.5% 

55.9%

65+ 

15.6%

15.5% 

18.8% 

22.6% 

United States     

Under 18 

 25.7%

24.1% 

23.9% 

23.6% 

18-64 

61.9%

62.9% 

59.8% 

56.8% 

 65+

12.4% 

13.0% 

16.3% 

19.7% 

What does this mean?

  • Pennsylvania has a smaller percentage of youth than the country overall. The Census Bureau projects there will be 6% fewer people under 18 years old in Pennsylvania in 2030 than there were in 2000 - about 176,000 less.
  • The percentage of working-age people will decrease nationwide - after a mild peak sometime around 2010. For Pennsylvania, that trend translates into 308,000 fewer working-age people in 2030 than in 2000, and a significant drop-off from 2020.
  • Decreasing proportions of young and middle-aged people means there will be more older people in Pennsylvania. By 2030, despite minimal overall population growth, expect nearly 1 million more older people than in 2000. The nation is experiencing the same trend of increasing numbers of older persons as baby-boomers age - but not in proportion to total population. In Pennsylvania, the proportion of elderly to the total population will remain greater.

So what does an aging population mean for Pennsylvania public policy?

There are two sides of the equation. First, the government spending side:

State and local governments provide services generally not furnished by the private sector but essential to the well-being of our society. The number of people demanding services and the number paying for them are at the heart of many government policy decisions. What are the implications of Pennsylvania’s future demographics for the state and local government services?

Medicaid. Medicaid, or Medical Assistance as it’s called in Pennsylvania, is among the largest and fastest growing programs in the state budget. While the elderly represent only 13% of all state medical assistance recipients, they consume more than a third of all resources. What impact will an increasing number of elderly - as well as higher overall health care costs - have on the already worrisome state Medical Assistance program?

Transportation. Ever since the 1960s, baby boomers have been moving to the suburbs in droves. The transportation system that has facilitated that movement is primarily highway-based. As Pennsylvania’s population ages and older drivers become less able to drive, how will the elderly - particularly in suburban and rural areas - move from place to place, if only for the essentials of life?

Education. Fewer children should translate into smaller school districts and less demand for funding. While the school age population will decline statewide, this won’t be the case in every school district. Patterns of uneven decline will create new challenges for distributing state education funding and delivering basic education, particularly in the most rural and urban areas. And in higher education, post-secondary enrollment will increase only 2% between 2000 and 2015. Will policymakers properly adapt Pennsylvania’s school finance system to the realities of changing demographics?

Corrections. An aging population should mean lower crime rates since the elderly commit fewer crimes than youth and young adults. Will the corrections system offer opportunities for lower-than-inflation growth rates, relieving some of the pressure on the state budget? Or will any potential savings be overcome by other factors such as rising health care costs of its own aging-in-place population?

The second side of the equation? The revenue outlook.

Increasing revenues could offset additional pressure expected from rising demands for services. Unfortunately, this likely won’t be the case. Pennsylvania’s state and local income tax system essentially gives a pass to retired people by exempting most retirement income. And older people also are less likely to be big sales tax contributors. Current policy trends to exempt greater portions of the property tax could decrease the overall tax base even further. As for business tax revenues, how many growing businesses will want to locate in a state with a stagnant or declining base of working-age people when there are so many other choices - in the United States and globally?

As the taxpaying portion of the population shrinks, both as a portion of the total and eventually in absolute numbers, the tax base shrinks as well. Who’s going to pay not only to keep government going at current levels, but also for increasing demands for services?

Are Pennsylvanians up for the challenge?

The rising demand for services and a shrinking tax base could be a recipe for fiscal disaster, even with a margin of error of 10% or 20%. It doesn’t have to be. The good news about demographic projections? First, there’s a general description and understanding of the problem well before it occurs, allowing time to prepare for the inevitable. Second, it’s possible to steer Pennsylvania’s future course in other directions through aggressive policies to improve the state’s overall economic competitiveness. Ultimately, a combination of both is the necessary solution.