Agency casts gloomy financial forecast for state

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HARRISBURG -- Pennsylvania faces a long-term structural deficit and will enter next year's budget deliberations without the financial cushion that helped policymakers manage the past three years, according to an economic outlook released last week by the state Independent Fiscal Office.

The IFO, a nonpartisan office created in 2010, projects that if state laws were to remain unchanged, Pennsylvania's revenues over the next five years would increase at an average annual rate of 3.1 percent, failing to keep up with a 4.1 percent average annual rate of growth in expenditures.

The projected disparity is based in part on forecasts that the population of Pennsylvanians 65 and older will increase 29 percent between 2010 and 2020, while the state's working-age population will remain unchanged. These demographic trends could limit growth in the personal income tax base and in the sales tax base, as older people tend to spend more of their disposable income on non-taxable goods and services, such as health care, the report noted.

Payments into the pension systems for state and public school employees are scheduled to rise significantly in the next few years.

State law requires the enactment of balanced budgets, and so the IFO noted that the disparity it projects in the coming years "merely reflects the difficult choices that policymakers will confront in future budgets."

Exacerbating that difficulty is the fact that budget writers will enter next spring's deliberations without the carry-forward that helped fill gaps in recent years.

The state general fund ended June 2012 with a $659 million surplus, which it then carried forward into the next fiscal year; this past June, it ended the fiscal year with $543.6 million, according to the governor's budget office.

But the IFO projects the state will end this year with only $11 million in its general fund.

"We're looking at a deficit, and we're looking at ways to obviously manage that deficit through either cost-cutting or revenue generation that does not include tax increases," said Jay Pagni, spokesman for Gov. Tom Corbett. "It's obviously a very difficult situation that requires our attention."

The state could bridge the gap, he said, by reducing its pension payments through a reform plan, enacting a transportation funding bill, slowing tax credits or expanding small games of chance into taverns.

Sen. Jay Costa of Forest Hills, the Senate Democratic leader, also pointed to new transportation fees as one way the state could generate money, and said the state could opt to expand eligibility for Medicaid through the Affordable Care Act. (Mr. Corbett instead has asked the federal government to allow Pennsylvania to change its existing program and give low-income people subsidies to purchase insurance.)

Mr. Costa also pointed to a Senate Democratic plan to modernize -- not disband -- state wine and liquor sales and the prospect of reducing how long the state holds unclaimed property.

"We have ways we can close a budget very easily," he said, "without raising broad-based taxes, and that's what I think is important here."

Mike Stoll, a spokesman for House Appropriations Committee Chairman Bill Adolph, R-Delaware, said the projections highlight the need for a "prudent approach to budgeting to make sure we're living within our means."

Karen Langley: or 717-787-2141.

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