April 18, 2012 / 10:29 PM / in 6 years

As U.S. ages, Europe-style problems could flourish

LAS VEGAS (Reuters) - The population of the United States is quickly aging, a trend that will soon have a big impact on local finances unless quick fixes are adopted.

The alarm was sounded at a conference of municipal bond analysts in Las Vegas on Wednesday.

“Problems we see now in Greece, Italy, Spain and Portugal are the same ones we will be facing in 10 years from now,” said Tom Gillaspy, a demographer with the state of Minnesota.

With the exception of Alaska, which continues to attract young people, and Utah, which has a high birth rate, U.S. states are seeing their populations age.

In this decade, the United States will an increase in the number of adults over 65 equal to the growth in that age group seen over the last three decades combined, Gillaspy said.

Florida and Arizona, whose mild weather and lower taxes attract many retirees, are among the states with older populations, “followed by New York and others states in the Northeast, but the trend is homogeneous nationwide,” he said.

An older population means slower economic growth, lower income and property tax collections, and higher Medicaid spending, according to Gillaspy.

“The people around the U.S. do not understand what the implications are. Cutting programs and increasing taxes will never be enough,” said Gillaspy, who said local governments should start soon to boost their productivity. “Incentives need to be restructured at local level to manage this trend.”

Lower economic growth could also impair rates of return on investments by government pension funds, as well as create a vicious circle with governments tapping money originally pegged for education and other purposes to support increased needs for the elderly.

“We made promises predicated on an expected economic growth higher than what it will actually be,” said Gillaspy.

While in the short run an aging population can boost the economic growth, that does not last forever, said Mehmet Tosun, an associate professor at the University of Nevada.

For every 1,000 elderly people moving to a state, at least 600 new jobs are created to provide services for them, Tosun predicted, saying that the numbers can rise if the income of the new residents is higher.

However, in the long run the aging population tends to create a conflict among generations on how to allocate scarce resources, he said.

Reporting By Tiziana Barghini; Editing by Leslie Adler

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