Last week, the state’s Independent Fiscal Office released its economic and budget outlook for the next five years. The Executive Summary of the IFO’s findings are based on three main assumptions: that the labor force will expand despite a decline in the labor market between 20-64 year olds; that there will be moderate growth in historical cost drivers after the current Fiscal Year (most notably, within the state’s pension systems and in the healthcare market); and that the state’s economy will continue to operate at its long-term potential.
The report recognizes that revenues for 2018-19 should continue to come in strong, thanks in large part to the economic gains realized through the federal Tax Cuts & Jobs Act. However, it also raises concerns about several issues that could negatively impact revenues in the next half-decade – including a large increase in the projected deficit to $1.7 billion for FY 2019-20 that is based on the expiration of various one-time measures that were previously utilized. This will very likely make Pennsylvania’s budget process more difficult in the coming months.
The report also notes that there are various long-term demographic concerns in play that could negatively affect Pennsylvania’s future economic stability – including declining birth rates and a possible contracting labor force. Finally, the IFO is predicting based on survey results that there will be a recession at some point over the three years, which will hopefully be minor (although the report puts forth the impact of a number of recession scenarios). The remaining question is to whether the federal government will be able to step in to help states.
The full summary and report can be accessed on the IFO’s website.