In November, the Pennsylvania Independent Fiscal Office (IFO) released its Five Year Economic and Budget Outlook. Here are several trends for lawmakers.
Pennsylvania’s Economy Remains Stagnant
- IFO forecasts Pennsylvania’s real gross domestic product (GDP) growth (adjusted for inflation) will be zero percent in 2023.
- Moreover, the IFO expects Pennsylvania to continue losing population over the next few years.
- While Pennsylvania’s unemployment rate is at historic lows, the labor force participation rate—the percentage of working-age adults employed or looking for work—is also in decline.
- Pennsylvania’s labor force has decreased by 120,000 workers versus pre-Covid19 pandemic levels. The IFO estimates that 50 percent is due to demographics, and 50 percent due to other factors.
- This rate must increase to fill the number of available jobs in Pennsylvania.
- The IFO projects payroll employment won’t recover to pre-pandemic levels until 2027.
Enhanced Funding for Medicaid Is Temporary
- The Families First Coronavirus Response Act (FFCRA), amended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides qualifying states a temporary 6.2 percent increase to their Federal Medical Assistance Percentage (FMAP), or Medicaid matching rate, so long as there is a federally declared public health emergency.
- The 2022–23 Pennsylvania state budget uses a total of $2.57 billion of enhanced FMAP to offset programs costs.
- Additionally, as part of the public health emergency, states are forbidden from removing recipients from Medicaid rolls unless they die or leave the state—even if incomes exceed Medicaid eligibility.
- This has led to a dramatic increase in Medicaid enrollment, nearly 30 percent, which continues even as the economy improves.
- The IFO projects a 13 percent decline in Medicaid enrollment once the public health emergency ends and redetermination of eligibility begins.
- The IFO estimates a 12-month process for the state to determine Medicaid eligibility. Given the size and cost of the estimated Medicaid-ineligible population, lawmakers should work to expedite this process.
Pennsylvania Faces a Long-Term Budget Deficit
- The temporary federal funds allow for the current budget to be balanced—but General Fund spending exceeds ongoing state revenues. One-time federal pandemic spending does not change the fact that Pennsylvania state government spends more than it collects.
- The forecast puts net General Fund revenues at $42.46 billion, while appropriations are $44 billion for Fiscal Year (FY) 2022–23.
- The temporary enhanced FMAP reduces state costs by $2.57 billion, creating a temporary and artificial budget surplus.
- The IFO projects deficits of $1.67 billion next year, followed by $2.4 billion in 2024–25, and exceeding $3 billion in the years following.
- The IFO projects the year-end General Fund balance to reach $6.68 billion at the end of June 2023. This effectively represents the amount in the state’s checking account.
- At this current rate of spending and revenue growth, lawmakers will be facing a tax increase in 2026, unless they act to:
Independent Fiscal Office (IFO), “Pennsylvania Economic & Budget Outlook: Fiscal Years 2022–23 to 2027–28,” (Harrisburg: IFO, November 15, 2022) 11, http://www.ifo.state.pa.us/download.cfm?file=Resources/Documents/Five_Year_Outlook_2022.pdf.
Commonwealth Foundation, “Pennsylvania’s Population Problems,” February 8, 2022, https://www.commonwealthfoundation.org/research/pennsylvania-population-problems/.
Independent Fiscal Office (IFO), “Pennsylvania Economic & Budget Outlook,” 10.
Congressional Research Service, “Temporary Federal Medical Assistance Percentage (FMAP) Increase for Title IV-E Foster Care and Permanency Payments,” September 30, 2022 [update], https://crsreports.congress.gov/product/pdf/IN/IN11297.
Alex Ruoff and Ian Lopez, “Biden Extends Covid Public Health Emergency While States Move On,” Bloomberg Law, November 14, 2022, https://news.bloomberglaw.com/health-law-and-business/end-for-covid-public-health-emergency-declaration-uncertain.
Independent Fiscal Office (IFO), “Pennsylvania Economic & Budget Outlook,” 25.
Independent Fiscal Office (IFO), “Pennsylvania Economic & Budget Outlook,” 33.
Commonwealth Foundation, “Pa’s Wayward Welfare State,” October 27, 2022, https://www.commonwealthfoundation.org/research/pa-wayward-welfare-state/.
Elizabeth Stelle and Stefanie Mason, “Medicaid’s Endless Expansion,” July 5, 2022, https://www.commonwealthfoundation.org/research/medicaid-endless-expansion/.
Independent Fiscal Office (IFO), “Pennsylvania Economic & Budget Outlook,” 41.
Pew Charitable Trusts, “Fiscal 50: State Trends and Analysis,” State Fiscal Health Project, December 16, 2022 [update], https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2014/fiscal-50?utm_campaign=2022-10-21+Fiscal+50&utm_medium=email&utm_source=Pew&subscriberkey=003U0000011CtUgIAK#ind5.