Your Liberty is Our Interest

Scott Hofstra’s View of the Pension Crisis

Ladies and Gentlemen,
We are now four weeks or more than one third of the way into this year’s legislative schedule. Compared to last year’s session when the legislature took the bull by the horns and passed important legislation in the first week, this year’s legislative session has marked by the almost total lack of accomplishment.
The two critical items that must get done in this session are the bi-annual budget and serious pension reform. Unfortunately, the Jeff Hoover circus and threats from the teachers have most of the legislators in hiding. Even legislators who have been reliably conservative are running scared of the teachers and state employees. Several of those legislators have related to me that even though they believe that real, transformative pension reform needs to happen, they won’t vote for it because they will be voted out of office by the teachers and state employees.
Once again, the teachers, school employees and state employees have a stronger voice in our legislature than we do. The fact that a record number of teachers have registered to run for the state house this year, is proof that they would rather push their one sided position and bankrupt the state of Kentucky instead of fixing its financial crisis.
If the teachers and state employees manage to shut down pension reform this session, the legislators only option will be to raise taxes. What the teachers, school employees and state employees don’t want to admit, is that economics is like physics. For every action, there is an equal and opposite reaction. By raising taxes instead of dealing with the real root of the crisis, individuals were be incentivized to leave the state, businesses will be incentivized to leave the state, businesses will struggle under the new tax burden and the state will find it more difficult to entice businesses to move to and invest in Kentucky.
The teachers and state employees will ride the tax increase train all the way to the scene of the crash, and make no mistake, there will be a crash. States can’t declare bankruptcy but they can declare insolvency. The Mercatus School of Economics has predicted that this could happen as early as 2019 in Kentucky. At that point, the federal courts get involved and only essential expenses get paid. If you look at the bankruptcy proceedings in Detroit, the pensions were the first things to fall under the emergency manager’s knife. Pensioners received pennies on the dollar for their pensions.
Kentucky is at a crossroads. This is our “Pay me now or pay me later” moment. If we don’t adopt a plan that makes further painful cuts to the state budget, affect uncomfortable reforms to the pension plans and raises taxes, which will be uncomfortable for the rest of us, the state could easily find itself declaring insolvency and the pain will be greatly multiplied for everyone. A single pronged approach will not fix this problem. Every Kentuckian will have to feel the pain in order to recover from this financial crisis.
Governor Bevin didn’t cause this crisis but he is catching the heat for having the courage to tackle it head on. Governor Bevin has submitted his pension reform plan and most legislators immediately ran away from it. Governor Bevin has also submitted his budget plan, which was also panned by many legislators. The big question now is, do the legislators have the backbone and commitment to do the right things, even if it means risking their positions as legislators? The next 6 weeks will tell whether we get pension reform or just see our tax bill increase. Can this legislature get past the Hoover circus and find the courage to do the right things for Kentucky and its future? We elect our politicians to do the right things for all of us. We will be closely watching their actions in the coming weeks.
Scott Hofstra

February 5th, 2018 at 7:31 am


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