This is one superlative that Maine would probably like to avoid.
In less than eight years, nearly one in four Mainers will be 65 or older, a situation with some serious economic consequences.
Fitch Ratings, one of the country’s leading bond rating agencies, said that by 2026, Maine will have the highest percentage of people 65 and older in the country, a status it calls “super aged.” And with that designation comes the danger of lower bond ratings and lower contributions to the state’s tax coffers.
“That’s a very real problem and it’s barreling right at us,” said Phil Harriman, a former state legislator who, as chairman of the Maine Municipal Bond Bank board, has to watch what Fitch and other rating companies say about the state’s economic health and finances.
An aging population works less and spends less than its younger counterparts. That’s bad news from “rapid and unprecedented demographic changes,” said Fitch, which issued a report on Maine’s “super aged” status this week. The term refers to states where people 65 or older make up 20 percent or more of the population.
The biggest worry, it suggests, is the working less part.
“In West Virginia, Vermont and Maine, working-age populations are projected to decline approximately 0.5 percent between 2017 and 2026,” the report said. “This trend will strain economic growth in these states, with knock-on implications for revenue growth prospects and ratings.”
BIG IMPACT OF BOND RATINGS
Maine already lags in the growth of its working-age population, productivity and economy. One bright spot, the report said, is the growth in the percentage of the working-age population with jobs, but that’s unlikely to offset the drag caused by workers moving into retirement.
All those factors, the report suggests, could lead to a downgrade of the state’s bond rating, which affects how much it costs for the state to borrow huge sums of money for things like highway repair, sewer and water system upgrades, and school construction.
Even a slight downgrade can add thousands of dollars to how much taxpayers will pay in added interest on a bond.
Mike Goodwin, the executive director of the municipal bond bank, said the exact impact depends on many factors, including the state of the bond market at the time bonds are sold. But he said a slight drop in the state’s rating could add another $5,000 a year on a 20-year, $10 million bond.
Steeper credit rating downgrades would carry much harsher financial consequences and make it harder to sell the bonds to wary investors.
Harriman said Maine has benefited from establishing healthy financial reserves, but it’s clear that the state’s AA bond rating from Fitch – considered a high-grade rating, but a step below prime – is on somewhat shaky ground.
The Fitch report notes that the state’s economy grew just 0.8 percent from 2007 to 2016, the third lowest among the states.
POSITIVE POPULATION TREND
Harriman and others say the state needs to do a better job of attracting younger workers, which would boost the size of the workforce and reverse the loss of college graduates who leave for jobs elsewhere. It’s the biggest economic issue facing the state, he said, and he hopes the new governor elected next week will step in to develop a coordinated approach to attracting employers and employees.
Nationally, 10,000 people a day are waking up as new 65-year-olds, and that will continue for a decade as baby boomers continue to age and move out of the workforce. A coordinated effort by the state and other groups will be needed to counteract the impact of rapid aging, Harriman said.
“Otherwise the people who can will leave, and the people who can’t will stay,” he said.
The state is making some progress in that area, although the steps are small, said Amanda Rector, the state economist.
She said the state has reversed a slow drain on its population of 1.3 million during the past two years, recording a net increase in in-migration of nearly 7,000 in 2017.
Even better, Rector said, the largest growth in people moving into Maine were those ages 25-34, an age when people tend to put down roots and start families. That could pave the way for stronger population growth in the future, she said.
“We’re well aware that we have an aging population,” Rector said, but if the population trends continue, “hopefully we can move in a more positive direction.”
DEALING WITH THE PROBLEM
Economist Charles Lawton said the report gives lawmakers a reason to dust off an old plan to get around the demographic challenges to state finances.
In 2009, the Legislature adopted a tax reform plan that would have broadened the sales tax to include more items, including many services. The advantage, supporters said, was that it shifted more of the tax burden from the income tax generated by residents to sales taxes paid by out-of-staters, especially visiting tourists. Lawton said that approach could help ease the impact of Maine’s aging population on state revenues.
The 2009 reform was repealed the next year in a people’s veto, but Lawton said lawmakers may want to take another look at it as the financial impact of an aging population becomes clearer.
The ultimate message he gets from the Fitch Report is that people need to look beyond the fact that the state’s population is getting older and focus on how to manage the impact of that.
“The fiscal structure is the challenge,” he said. “The demographics you may not be able to change much.”
By 2026, Maine is forecast to have the highest percentage of people age 65 and older in the country. (Shawn Patrick Ouellette/Portland Press Herald)
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