Pennsylvania's population is aging. Who is going to pay for it?

Mary Walsh, age 82, sits in the living room in the Adult Day Care Center, Active Day of Center City in South Philadelphia.

At a ribbon-cutting for new offices of an engineering firm in Conshohocken, State Rep. Mary Jo Daley said she was pleased to learn that the company would attract young professionals.

“I was joking with some of the young people that we really actually need them to move in,” said Daley (D., Montgomery), “because we all expect to retire at some point and we need someone to continue paying the taxes.”

Her humorous comments at the Thursday event spoke to a harsh and potentially costly reality: Pennsylvanians are getting older, more expensive — and less taxable.

The state’s senior population is growing at a rate 20 times faster than Pennsylvania’s overall population. By 2025, more than one in five Pennsylvania residents will be 65 or older, according to population projections from the U.S. Census and the Pennsylvania State Data Center, while the numbers of people below the traditional retirement age decreases.

The demographic shift raises the question: Who will pay the bills?

Pennsylvania’s Aging Population

The state’s population is projected to grow by 4 percent from 2015 to 2025, but the number of residents who are 65 or older would grow by over 30 percent.
SOURCES: U.S. Census Bureau; Pa. State Data Center; Pa. Independent Fiscal Office
Staff Graphic

The increasing senior population will swell the demand for nursing homes, senior centers, transportation services, and other programs offered by state and county governments. The annual cost of providing senior programs is increasing more than twice as quickly as the revenue sources that fund them, according to the state’s Independent Fiscal Office.

The increased demand and costs also will come as seniors retire and stop paying state and local income taxes. And raising property taxes — nearly a third of which are currently paid by homeowners who are over 65 — is often politically unpopular because it affects seniors who live on fixed incomes and don’t have children in schools, which consume the bulk of the tax revenue.

“It’s by no means an easy issue and it is only going to get worse,” said Robert Strauss, a professor of economic and public policy at Carnegie Mellon University who has studied the effect of the aging population on state finances.

Strauss predicted that between fiscal year 2013 and 2025, state spending on senior service could increase by as much as $3.1 billion.

While the numbers of  U.S. residents who are 65 or older increased from 12.4 percent of the population in 2000 to 15.2 percent in 2016, according to census data, Pennsylvania is exceptional. The percentage of seniors living in Pennsylvania is higher than it is in New Jersey.

Only Maine, New Hampshire, Vermont, West Virginia, and Florida have higher median ages; Pennsylvania’s is the same as Connecticut’s, 40.6.

State and local officials are aware of the trends — especially those who work to provide services to the elderly.

“We really have been trying to be proactive in thinking about this next generation and thinking about the impact that it’s going to have on how we deliver our services,” said Barbara O’Malley, Montgomery County’s director of health and human services.

“It really does worry me when I hear about it,” said Daley, who serves on appropriations and finance committees and noted that the population is not aging as quickly in Southeastern Pennsylvania. “But I feel a comfort level living in an area where the population is not declining.”

Still, Daley said, she does worry about the economic well-being of the state as a whole — especially as the legislature continues to struggle to pass budgets and agree on revenue sources.

The state Department of Aging developed a four-year plan in 2016 to address the aging population and improve senior services. That department — funded by the Pennsylvania Lottery and the federal government — allocates money annually to local agencies that care for the aging. Many of them are county-run, and rely primarily on state money and grants to determine seniors’ eligibility for Medicaid and other services. Many operate nursing homes and senior centers and offer other services.

In Montgomery County, O’Malley said officials have an emphasis on managing and preventing health issues in efforts to keep people in their own homes as they age.

One recent change at the state level is the introduction of managed-care companies to handle nursing-home eligibility and care plans for seniors who use both Medicare and Medicaid. The program, called Community HealthChoices, will go into effect in the Philadelphia region next year.

State officials say the program will help elderly residents receive quality services and could lead to cost savings. But county-run nursing homes have some concerns, said Kelly Andrisano, executive director of the Pennsylvania Association of Affiliated Healthcare and Living Communities, which represents county-run nursing homes. Counties are worried about sustaining their nursing homes should managed-care companies encounter financial trouble.

While costs increase, Pennsylvania faces an eroding tax base. According to a report by the state’s Independent Fiscal Office, wage and income taxes will become less important because retirement income is not subject to it, and the sales tax base could erode because elderly people purchase fewer taxable goods.

Strauss, the Carnegie Mellon economist, testified before a committee of state lawmakers in November and suggested that a tax on retirement income could solve some of the looming financial obligations to care for the elderly.

But lawmakers “get uncomfortable” at the suggestion, he said. “They know that trying to tax retirement income is going to make the elderly p—– off.” More seniors means more seniors at the voting booths.

He said he tells lawmakers that they could phase in a partial tax on retirement income, adding that 16 states tax private retirement income, and 19 tax it partially.

Strauss said he had a simple message for those skeptical of raising taxes or taxing retirement income: “I told them that I didn’t think they had any choice.”