Pennsylvania’s struggle with debt is a significant issue that has placed it in a precarious financial position. A combination of factors contributes to this mounting debt, painting a complex picture of the state’s fiscal challenges.
- Overall Debt Burden: As of a recent report, Pennsylvania’s state and local government debt is projected to reach $70.91 billion by 2027, up from $54.17 billion in 2021. This staggering amount has led to Pennsylvania having the highest debt per capita among all U.S. states, with an estimated $5,538 of debt for each resident.
- Pension Liabilities: A major factor contributing to this debt is the state’s underfunded public pension systems. With an unfunded liability exceeding $70 billion as of 2020, Pennsylvania struggles to meet the retirement benefits of public employees like teachers, police officers, and firefighters. This liability is compounded by rising healthcare and education costs.
- Infrastructure Spending: Pennsylvania’s large and aging infrastructure, including roads, bridges, dams, water systems, and public buildings, requires significant investment. The American Society of Civil Engineers estimates a need of $28.6 billion over the next decade for infrastructure improvements, necessitating further borrowing.
- Impact of the COVID-19 Pandemic: The pandemic has exacerbated Pennsylvania’s fiscal challenges. A decline in tax revenues combined with increased spending on public health and unemployment benefits has widened the fiscal gap. The pandemic also intensified long-term challenges like population decline, income inequality, and poverty.
- Credit Rating Downgrade: Pennsylvania’s growing debt has led to downgrades by credit rating agencies like Moody’s, S&P, and Fitch. These downgrades mean the state faces higher interest rates on borrowed money, adding to the debt burden and reducing fiscal flexibility.
- Increased Taxes and Fees: To manage the debt service, which consumes a large portion of the budget, Pennsylvania may need to raise taxes and fees. This could negatively impact disposable income and the competitiveness of residents and businesses.
- Effect on Economic Growth: The high debt limits Pennsylvania’s ability to invest in essential areas for economic growth. This includes cuts in spending on workforce development programs and infrastructure projects, potentially reducing the state’s productivity and attractiveness to investors.
- Debt Levels Since 2002: The combined state and local debt in Pennsylvania has risen significantly since 2002. The total state obligations, including unfunded liabilities, exceed $17,600 per resident. This figure could increase as the state may need external borrowing to cover its bills.
- Specific Debt Figures: Pennsylvanians owe over $134 billion in state and local government debt, equating to $10,509 per person or $42,036 for an average family of four. This represents a 52% increase in total debt since 2002.
- Unfunded Public Employee Benefits: Taxpayers are responsible for nearly $92 billion in unfunded public employee benefits. This accounts for $7,178 per person in Pennsylvania.
- State-Level Debt Increase: The total Pennsylvania state debt increased from $23.1 billion to more than $52 billion in nine years, an increase of 125%. The state general obligation debt alone has increased by 97% since 2002.
- School District and Local Government Debt: School district debt increased by 57% from about $20 billion in 2002 to $31.4 billion in 2016. Additionally, local government debt (counties, cities, townships, boroughs, and special districts) represents over 40% of all taxpayer debt in Pennsylvania.
The cumulative effect of these factors places Pennsylvania in a challenging fiscal situation, requiring comprehensive and strategic measures to manage and reduce the overall debt burden.