Horizon, Host: Ted Simons

March 20, 2008


Host: Ted Simons

Legislative Update


  • A reporter from the Arizona Capitol Times will bring us up to date on the latest from the state Legislature.
Guests:
  • Jim Small - Arizona Capitol Times reporter
  • Jon Kyl - United States Senator
Category: Legislature

View Transcript
Ted Simons:

Tonight on "Horizon" Jon Kyl talks about the war, the economy and Indian water rights. And a capitol reporter tells us what state lawmakers are doing to solve the budget crisis and revise the employer sanctions law. Those stories are next on "Horizon."

Ted Simons:
Hello and welcome to "Horizon." I'm Ted Simons. The big news at the state capitol continues to be the budget. Lawmakers are facing a shortfall estimated at more than $1 billion this year. The number approaches 2 billion in 2009. Here to tell us what lawmakers are doing about it is Jim small, a reporter for "Arizona Capitol Times." good to have you back here. Sounds like a stalemate over school bonding is broken, correct?

Jim Small:
It seems that way. The Republicans in the house openly acknowledged there needs to be bonding for schools. Simply they are facing--excuse me--$3.1 billion budget deficit for this year and upcoming fiscal year. It only being a $10 billion or $10.5 billion budgets, you have to look at options you didn't look at before.

Ted Simons:
The Republicans are saying we'll look at bonding. What are we hearing about cuts?

Jim Small:
We heard from the Republicans in the house yesterday. House speaker Jim Weirs told the House Republican caucus there wouldn't be just bonding but $190 million of cuts agreed with the governor and in addition fund sweeps where users pay a fee for surcharge dedicated to keep a program running and they will take access out of that to balance the budgets.

Ted Simons:
So 190 in cuts, we got 300 in sweeps. How much would bonding cover?

Jim Smalls:
Bonding then covers $750 million over the next year. That gets you partway to where you need to go. The reality is and I think House Speaker Weire said this plainly yesterday you have to have cuts. You have to have deep cuts. He said it will take a billion dollars. I think the final numbers will be hashed out in the negotiations next week.

Ted Simons:
So, it sounds like things are happening.

Jim Small:
Definitely, budget talks were moving very slowly for the first couple of months but picking up momentum.

Ted Simons:
We had a dust off involving the Arizona governor with Arizona running out of the cash. She mentioned reserves. It raised a red flag on this program as well. Should the treasurer not know where all the cash is?

Jim Small:
I think that's the general idea. That's what Dean Martin was basing his statements on is the fact he's supposed to know where state agencies have their money and how much they have. This afternoon the Goldwater Institute sent out a press release questioning that point. Are state agencies breaking the law? Are they setting aside money not with the treasurer that they are not telling us about? We haven't gotten a clear answer from the governor. They said that's part of the negotiations and the governor doesn't want to negotiate through media, so they didn't give specific details.

Ted Simons:
Moving to employer sanctions. Looks like they stalled. What's going on?

Jim Small:
There's a big bill moving through most of the year. It will make changes to the law of businesses and add parts to the economy. The sticking point in the Senate appropriations on Tuesday is businesses not adding in the state verified worker program. What was agreed to by the business communities or groups, any business that doesn't sign up for E-Verify by August would not be allowed to deduct the salaries of their employees as business expenses? Which would be, that would hit the business exactly were they live.

Ted Simons:
Is this Representative Pearce basically saying I gave in on the retroactive aspects of employer sanctions, this is mine? I will not go with this?

Jim Small:
Yeah, I have talked to a couple of people who were in on the negotiations in craft and the language of this bill. They said that's exactly the way it worked. He agreed to go ahead and make the right language and it will apply for people hired after January 1st. In exchange he wants to get this shtick for it.

Ted Simons:
How much of a stumbling block will it be?

Jim Small:
I don't know. The number of people that oppose the particular version of the bill is you have a lot of businesses that are family businesses, one or two people. A guy owns a business and the only employee is his daughter. He saw her birth. Why should this person go out and go through the expense and procedure so sign up for E-Verify? If he doesn't he will be penalized.

Ted Simons:
We'll keep an eye on that.

Ted Simons:
Arizona Senator Jon Kyl is back at work in his home state this week while congress is at recess. I caught up with him yesterday at his office in phoenix to discuss a variety of topics including the economy and the war in Iraq. Senator Jon Kyl, thank you for joining us.

Jon Kyl:
Thank you. Great to be here.

Ted Simons:
The Iraq war five years and counting. The president saying the Iraq war is noble, just and necessary. Do you agree?

Jon Kyl:
I agree and I believe it's going better.

Ted Simons:
The surge made a factor in terms of improving conditions over there. Is there concern that the surge might be peaking?

Jon Kyl:
Well, the enemy is fighting back strongly. It's kind of like getting a bad guy cornered. He will fight back hard. These are resilient, tough fighters. We have booted them out of Baghdad and now they are now in Mosul. I understand the action is hot and heavy in Mosul. If we can defeat them there, I think it's the beginning of the end for al-Qaeda in Iraq. But again, they are resilient and if they see that we're getting ready to exit prematurely, you can be sure that they'll find a way to get back in the game.

Ted Simon:
I was going to ask, how fragile are these games?

Jon Kyl:
That's the question. And I'm waiting to ask that question of General Petraeus when he comes back in April. John McCain was there and I will ask John McCain that. That's the concern. I suspect General Petraeus when he reports to the president in April, will put a pause on the reduction in forces to make sure that the gains we have made hold so that we can later continue to withdraw our troops. If we start that withdrawal too quickly or continue at too fast a pace, the gains we made could disappear and we lost all we sacrificed for.

Ted Simons:
One of the ideas behind the surge was to get control and stability to get the Iraqi government up, operational and moving forward. It seems like when we hear about the Iraqi government someone is boycotting and not disagreeing to what they agreed to earlier. Give us an update.

Jon Kyl:
Sounds like the U.S. government. It is true they have not moved as quickly as we hoped they would. We put a lot of pressure on them. At some point we have to recognize they will not do things as we would or as quickly as we would. They have to realize unless they meet minimal goals, we will not hang around and continue to save their bacon. I think you'll see the next 6 month a telling point in the issue of the political improvement that they need to make, the economic improvement, the application of their oil revenues and some other factors that will dictate how long we need to stay there.

Ted Simons:
Talk about the application of oil revenues. How is that working out? Where is oil money going now? Where it is and how difficult is it to get those factions together?

Jon Kyl:
It's hard because most of the oil is controlled by two parts of the country and they want to keep the oil. The central part of the oil mostly controlled by the Sunis would like to keep it. How do you share it? We have oil drilling off the Gulf Coast in the states of Louisiana and Texas want to keep half of the royalties. We've made a deal to do that. The Iraqis made a deal, too. We originally thought the Iraqi oil sales would pay for a great deal of the war and reconstruction. At first the terrorists were blowing up the pipelines. It was difficult to keep the sales going. More recently the protection has occurred and beginning to rebuild the facilities. A lot of it is pouring in. A lot is banked. What we are telling them is look; you have the money coming in now. Spend it on the projects that the people have been waiting for and are asking you for and that's part of this whole reconstruction effort that we're engaged in.

Ted Simons:
What can America do, though, other than threaten to leave or put more troops in there? How do you pressure? I know the vice president was over there and tried to get progress going. How do you pressure these folks? What kind of leverage do we have?

Jon Kyl:
Well, it's very complicated. Without getting into details, part of it is showing them how--they are new at this democracy stuff. They haven't been able to take care of their infrastructure in the past. And to change and rival between the Kurds, Shia and the Sunis. We are not the experts. There are ways we apply pressure. We withhold things in various ways until they do things and the military pressure is on. See what happens when we are there. They don't want us to leave and therefore they know they have to step up to the plate.

Ted Simons:
Last point on Iraq, we are closing in on 4,000 dead there. 90 from Arizona. Is it worth it?

Jon Kyl: Let me tell you of an experience I had Monday evening. There's a group called Vets for Freedom who are Iraq vets who fought there. One is on active duty on leave and the lieutenant colonel who captured Saddam Hussein and went in a home in Fallujah and captured the guys. The bottom line is they don't want the sacrifices that they and their buddies made in vain. They know if they pulled out, it would be a waste of their effort. They want us to complete the mission. They want us to support them. And the main thing they said is don't tell us you support the troops and oppose the war. You can't have it both ways. Either you support us and the mission we are trying to accomplish and we are trying to do it on favorable terms or you don't mean you support us. I stand with the troops.

Ted Simons:
Let's get closer to home and talk about the economy. It's a concern to many folks. Are we in a recession?

Jon Kyl:
Technically, no. Try telling that to the mom who has to go to the store and pay $4 for a gallon of milk. The reality is that the economic conditions are poor now and we will soon be in a recession if things don't turn around quickly.

Ted Simons:
Are you okay with the federal bailout of Bear Sterns? The federal involvement with that company?

Jon Kyl:
It's a complicated issue. The Fed has some limited action they can take if they employ their resources very intelligently and carefully. It may well work out to be just fine but there is a very quick limit that they're going to find in their ability to bail folks out. If they go much beyond that limit, they will in fact jeopardize the entire creditability of the U.S. financial system because they themselves will be in effect jeopardy. They cannot take on bad security, bad collateral. They can't play in the market too much. The market has to be allowed to function.

Ted Simons:
Cutting rates and lending to some of these big investment firms, are you saying, okay, but to a point?

Jon Kyl:
Cutting--yes, yes. In both cases, okay to a point. Cutting rates, that's a general. That's not a specific to a specific company. That's helping folks who want to refinance their home or stay in a mortgage situation. If you cut the rates enough, I suspect you'll get home mortgages for 5.25\% here because of the rate cuts. That will help people that have found themselves stressed over a mortgage with a higher rate. When it comes to then helping to buy the assets of the company in trouble or collateralizing those assets, the feds have to be careful because they can get in over their heads and then the entire system is in jeopardy.

Ted Simons:
We have seen the feds very aggressive for a few years now and yet things seem to be getting worse. Why the disconnect? What's going on here?

Jon Kyl:
Well again, it's very complicated. The Fed, I think, allowed the interest rates to be too low for too long. That created the crisis we have and everybody was trying to get into a house at unrealistic prices, unrealistic rates. Now you have too many people hung out. And now the Fed has been trying to soften the recession or economic downturn but the effect of that is to increase inflation. 10 the reality is more people are impacted by the price of gas or the price of milk than the home mortgage situation. We've only had 1\% to 2\% of homes foreclosed on. That's too many compared to other things we deal with. In my view, the Fed should be far more focused on inflation than the bailout on some of the folks that got overextended.

Ted Simons:
Where was federal oversight, any oversight, on some of the companies? The bear sterns of the world, where was that?

Jon Kyl:
There wasn't any over that entity. An entity like Bear Sterns and other funding entities there's much less regulation. Part of what congress is looking at now is how to ensure pricing in the market so people will have an idea of the value of what they are buying. The hedge funds they are using, for example, it's very clear that the rating agencies, the banking houses, the hedge funds and others have to do a better job at pricing so people will know what they are getting and understand the value and not put good money against poor value.

Ted Simons:
A general question on the economy. Critics of the Bush administration say deregulation, tax cuts and all these things were supposed to help the economy.

Jon Kyl: And they did.

Ted Simons: If we have a problem now, what happened?

Jon Kyl: We would be in terrible shape if we hadn't cut taxes. The Bush tax cuts especially in 2003 enabled us to walk away from the recession that began in the last three or four months of the Clinton administration. It had one of the longest sustained growths in the country. It led to the problem because it was a hot economy. The Fed let interest rates get too low. That's what began the problem that we have right now. The last thing you want to do in times of recession or economic slow down is impose more taxes on people. That's precisely what the Democrat budget that was passed this last weekend in congress would do. It's precisely what the two Democratic candidates say they would do and precisely what John McCain says he would never allow to happen. The biggest thing we could do for creditability of the economy and dollar and make it crystal clear we will not let the tax rates expire. If they are allowed to expire, you will see the largest tax increase in the history of the country anywhere from $2,000 to $4,000 per family.

Ted Simons:
How difficult is to get that message across when all we hear now towards the end of the Bush administration we're in for a recession.

Jon Kyl:
It's perfect in a recession. You can't raise taxes in a recession. The idea is in a recession is let people keep their money. In the stimulus package they will spend $150 billion to send rebate checks so they have money to spend. No matter that came out of somebody's pocket. Bottom line is when a recession is coming on, the last thing you want to do is have higher tax rates. This election is critical. I don't mean to be partisan here. The reality is there's a big choice people have to make. If they want to have their taxes go up, there's one way to vote. If they want taxes to remain where they are, there's another way to vote. In an economy like this, the last thing you want is a tax increase.

Ted Simons: You mentioned John McCain candidate. How can he run on issues like the war and economy considering what's going on in Iraq? Some will say progress and some saying not enough progress and a lot of concerns on the economy.

Jon Kyl:
Fortunately his message is exactly right for both issues. He is the one who thought we needed more troops, recommended the surge and it turns out that he's right. You want a commander in chief that understands that kind of thing and has the courage of conviction to make that when it could have killed his chances. Everybody thought he was dead as a candidate. Turns out he was right and people respect the decision he made. On the economy, as I say, this will be a very clear choice on a group who wants to raise taxes and john McCain who wants to keep them where they are and in the case of corporate rate taxes reduce them. That would help in an economic downturn. He will not allow them to go up. That's a key issue in time of recession.

Ted Simons:
I want to touch on illegal immigration here. How much should feds reimburse states for the incarceration for undocumented immigrants that cause crime in this country?

Jon Kyl:
About $900 billion a year to be specific. I doubt the Congress will give that money to reimburse the states. The states bear a large burden because when illegal immigrants commit crimes, they do time in the state's facility. The federal government has seen in the past to reimburse part of that money 20-30\%. In the amount we are talking about is 40-50\%. That results in the states having larger costs and costs for reimbursing the medical expenses. We have to take care of them that's a federal law. We have to educate kids of illegal immigrants and other costs with it particularly the drug trade. All of these impose costs on our communities. That's one of the reasons the federal government needs to resolve this sooner rather than later.

Ted Simons:: Obviously, it's later and seems like always later when we talk about this particular issue. What do you think about states like Arizona passing their own guest worker program? Arizona and Colorado looking at this. It would result in patchwork laws around the country. Have it gotten to the point where something needs to be done?

Jon kyl: Yes, we have gotten to that point. I'm dubious that Arizona passing a guest worker program would be constitutional. The federal government has control over our visa system and I don't think the state can do that. The state did do something about the illegal employment situation and there were great cries against what occurred. But I think that if it's implemented properly and if the court decisions put the right kind of constraints on it, it can be effective in reducing the employment of illegals in the state of Arizona.

Ted Simons:
Back to the upcoming election, are the Republican voters and GOP in general, are Republicans ready for the concept of guest worker program? That was a divisive point within the GOP.

Jon Kyl:
It was. I think the answer is yes. I don't see any question about the need for a guest worker program. The question is, is it temporary? It must be temporary. That is say they can be here a limited time and then required to go home. Does it meet the exact employment needs we have? Americans should be given the opportunity to be employed first. If there's no American who will in fact work in the area or can then a temporary worker program is appropriate and the final thing is it shouldn't lead to citizenship. We don't bring them here temporarily and have a citizenship track for them. That's the whole point of the temporary worker program. That's how other countries do it and we can do that in the United States.

Ted Simons:
Arizona water settlement act. Talk about what was settled.

Jon Kyl:
We had the final celebration of it on Monday. That's great to have it behind us. The reality is we are going to face water issues in the state of Arizona because it's a scarce commodity and there are a lot of us and there's more in the future. In a nutshell, it helped between Indian tribes and city and Salt River Project and how to allocate the central Arizona water project area that had not been allocated and the dispute of how much money the Arizona state owes to the federal government. In addition to resolving all of the disputes in a favorable way I might add, we created a pool of water and money to fund additional Indian water settlements. We have two or three pretty large settlements to conclude in the state of Arizona. The White Mountain Apache tribe has been able to get resolved and I'm happy to move that forward. They desperately need a source of water to serve their community. This isn't a big project. This is the drinking water for folks in White River and places like that. They are moving forward rapidly and we hope to conclude an agreement with them and the settlement we finished will provide some of the money and water to do that.

Ted Simon:
Thank you for joining us.

Jon Kyl:
Thank you, Ted.

Ted Simons:
The latest on the state budget. And a look at the state's economy, unemployment and housing. That's Friday on the "journalists' roundtable." that's it for now. I'm Ted Simons. You have a great evening.

senator Kyl


  • Arizona Senator Jon Kyl will talk about issues such as immigration, the war in Iraq and Sen. John McCain's presidential campaign.
Guests:
  • Jim Small - Arizona Capitol Times reporter
  • Jon Kyl - United States Senator


View Transcript
Ted Simons:

Tonight on "Horizon" Jon Kyl talks about the war, the economy and Indian water rights. And a capitol reporter tells us what state lawmakers are doing to solve the budget crisis and revise the employer sanctions law. Those stories are next on "Horizon."

Ted Simons:
Hello and welcome to "Horizon." I'm Ted Simons. The big news at the state capitol continues to be the budget. Lawmakers are facing a shortfall estimated at more than $1 billion this year. The number approaches 2 billion in 2009. Here to tell us what lawmakers are doing about it is Jim small, a reporter for "Arizona Capitol Times." good to have you back here. Sounds like a stalemate over school bonding is broken, correct?

Jim Small:
It seems that way. The Republicans in the house openly acknowledged there needs to be bonding for schools. Simply they are facing--excuse me--$3.1 billion budget deficit for this year and upcoming fiscal year. It only being a $10 billion or $10.5 billion budgets, you have to look at options you didn't look at before.

Ted Simons:
The Republicans are saying we'll look at bonding. What are we hearing about cuts?

Jim Small:
We heard from the Republicans in the house yesterday. House speaker Jim Weirs told the House Republican caucus there wouldn't be just bonding but $190 million of cuts agreed with the governor and in addition fund sweeps where users pay a fee for surcharge dedicated to keep a program running and they will take access out of that to balance the budgets.

Ted Simons:
So 190 in cuts, we got 300 in sweeps. How much would bonding cover?

Jim Smalls:
Bonding then covers $750 million over the next year. That gets you partway to where you need to go. The reality is and I think House Speaker Weire said this plainly yesterday you have to have cuts. You have to have deep cuts. He said it will take a billion dollars. I think the final numbers will be hashed out in the negotiations next week.

Ted Simons:
So, it sounds like things are happening.

Jim Small:
Definitely, budget talks were moving very slowly for the first couple of months but picking up momentum.

Ted Simons:
We had a dust off involving the Arizona governor with Arizona running out of the cash. She mentioned reserves. It raised a red flag on this program as well. Should the treasurer not know where all the cash is?

Jim Small:
I think that's the general idea. That's what Dean Martin was basing his statements on is the fact he's supposed to know where state agencies have their money and how much they have. This afternoon the Goldwater Institute sent out a press release questioning that point. Are state agencies breaking the law? Are they setting aside money not with the treasurer that they are not telling us about? We haven't gotten a clear answer from the governor. They said that's part of the negotiations and the governor doesn't want to negotiate through media, so they didn't give specific details.

Ted Simons:
Moving to employer sanctions. Looks like they stalled. What's going on?

Jim Small:
There's a big bill moving through most of the year. It will make changes to the law of businesses and add parts to the economy. The sticking point in the Senate appropriations on Tuesday is businesses not adding in the state verified worker program. What was agreed to by the business communities or groups, any business that doesn't sign up for E-Verify by August would not be allowed to deduct the salaries of their employees as business expenses? Which would be, that would hit the business exactly were they live.

Ted Simons:
Is this Representative Pearce basically saying I gave in on the retroactive aspects of employer sanctions, this is mine? I will not go with this?

Jim Small:
Yeah, I have talked to a couple of people who were in on the negotiations in craft and the language of this bill. They said that's exactly the way it worked. He agreed to go ahead and make the right language and it will apply for people hired after January 1st. In exchange he wants to get this shtick for it.

Ted Simons:
How much of a stumbling block will it be?

Jim Small:
I don't know. The number of people that oppose the particular version of the bill is you have a lot of businesses that are family businesses, one or two people. A guy owns a business and the only employee is his daughter. He saw her birth. Why should this person go out and go through the expense and procedure so sign up for E-Verify? If he doesn't he will be penalized.

Ted Simons:
We'll keep an eye on that.

Ted Simons:
Arizona Senator Jon Kyl is back at work in his home state this week while congress is at recess. I caught up with him yesterday at his office in phoenix to discuss a variety of topics including the economy and the war in Iraq. Senator Jon Kyl, thank you for joining us.

Jon Kyl:
Thank you. Great to be here.

Ted Simons:
The Iraq war five years and counting. The president saying the Iraq war is noble, just and necessary. Do you agree?

Jon Kyl:
I agree and I believe it's going better.

Ted Simons:
The surge made a factor in terms of improving conditions over there. Is there concern that the surge might be peaking?

Jon Kyl:
Well, the enemy is fighting back strongly. It's kind of like getting a bad guy cornered. He will fight back hard. These are resilient, tough fighters. We have booted them out of Baghdad and now they are now in Mosul. I understand the action is hot and heavy in Mosul. If we can defeat them there, I think it's the beginning of the end for al-Qaeda in Iraq. But again, they are resilient and if they see that we're getting ready to exit prematurely, you can be sure that they'll find a way to get back in the game.

Ted Simon:
I was going to ask, how fragile are these games?

Jon Kyl:
That's the question. And I'm waiting to ask that question of General Petraeus when he comes back in April. John McCain was there and I will ask John McCain that. That's the concern. I suspect General Petraeus when he reports to the president in April, will put a pause on the reduction in forces to make sure that the gains we have made hold so that we can later continue to withdraw our troops. If we start that withdrawal too quickly or continue at too fast a pace, the gains we made could disappear and we lost all we sacrificed for.

Ted Simons:
One of the ideas behind the surge was to get control and stability to get the Iraqi government up, operational and moving forward. It seems like when we hear about the Iraqi government someone is boycotting and not disagreeing to what they agreed to earlier. Give us an update.

Jon Kyl:
Sounds like the U.S. government. It is true they have not moved as quickly as we hoped they would. We put a lot of pressure on them. At some point we have to recognize they will not do things as we would or as quickly as we would. They have to realize unless they meet minimal goals, we will not hang around and continue to save their bacon. I think you'll see the next 6 month a telling point in the issue of the political improvement that they need to make, the economic improvement, the application of their oil revenues and some other factors that will dictate how long we need to stay there.

Ted Simons:
Talk about the application of oil revenues. How is that working out? Where is oil money going now? Where it is and how difficult is it to get those factions together?

Jon Kyl:
It's hard because most of the oil is controlled by two parts of the country and they want to keep the oil. The central part of the oil mostly controlled by the Sunis would like to keep it. How do you share it? We have oil drilling off the Gulf Coast in the states of Louisiana and Texas want to keep half of the royalties. We've made a deal to do that. The Iraqis made a deal, too. We originally thought the Iraqi oil sales would pay for a great deal of the war and reconstruction. At first the terrorists were blowing up the pipelines. It was difficult to keep the sales going. More recently the protection has occurred and beginning to rebuild the facilities. A lot of it is pouring in. A lot is banked. What we are telling them is look; you have the money coming in now. Spend it on the projects that the people have been waiting for and are asking you for and that's part of this whole reconstruction effort that we're engaged in.

Ted Simons:
What can America do, though, other than threaten to leave or put more troops in there? How do you pressure? I know the vice president was over there and tried to get progress going. How do you pressure these folks? What kind of leverage do we have?

Jon Kyl:
Well, it's very complicated. Without getting into details, part of it is showing them how--they are new at this democracy stuff. They haven't been able to take care of their infrastructure in the past. And to change and rival between the Kurds, Shia and the Sunis. We are not the experts. There are ways we apply pressure. We withhold things in various ways until they do things and the military pressure is on. See what happens when we are there. They don't want us to leave and therefore they know they have to step up to the plate.

Ted Simons:
Last point on Iraq, we are closing in on 4,000 dead there. 90 from Arizona. Is it worth it?

Jon Kyl: Let me tell you of an experience I had Monday evening. There's a group called Vets for Freedom who are Iraq vets who fought there. One is on active duty on leave and the lieutenant colonel who captured Saddam Hussein and went in a home in Fallujah and captured the guys. The bottom line is they don't want the sacrifices that they and their buddies made in vain. They know if they pulled out, it would be a waste of their effort. They want us to complete the mission. They want us to support them. And the main thing they said is don't tell us you support the troops and oppose the war. You can't have it both ways. Either you support us and the mission we are trying to accomplish and we are trying to do it on favorable terms or you don't mean you support us. I stand with the troops.

Ted Simons:
Let's get closer to home and talk about the economy. It's a concern to many folks. Are we in a recession?

Jon Kyl:
Technically, no. Try telling that to the mom who has to go to the store and pay $4 for a gallon of milk. The reality is that the economic conditions are poor now and we will soon be in a recession if things don't turn around quickly.

Ted Simons:
Are you okay with the federal bailout of Bear Sterns? The federal involvement with that company?

Jon Kyl:
It's a complicated issue. The Fed has some limited action they can take if they employ their resources very intelligently and carefully. It may well work out to be just fine but there is a very quick limit that they're going to find in their ability to bail folks out. If they go much beyond that limit, they will in fact jeopardize the entire creditability of the U.S. financial system because they themselves will be in effect jeopardy. They cannot take on bad security, bad collateral. They can't play in the market too much. The market has to be allowed to function.

Ted Simons:
Cutting rates and lending to some of these big investment firms, are you saying, okay, but to a point?

Jon Kyl:
Cutting--yes, yes. In both cases, okay to a point. Cutting rates, that's a general. That's not a specific to a specific company. That's helping folks who want to refinance their home or stay in a mortgage situation. If you cut the rates enough, I suspect you'll get home mortgages for 5.25\% here because of the rate cuts. That will help people that have found themselves stressed over a mortgage with a higher rate. When it comes to then helping to buy the assets of the company in trouble or collateralizing those assets, the feds have to be careful because they can get in over their heads and then the entire system is in jeopardy.

Ted Simons:
We have seen the feds very aggressive for a few years now and yet things seem to be getting worse. Why the disconnect? What's going on here?

Jon Kyl:
Well again, it's very complicated. The Fed, I think, allowed the interest rates to be too low for too long. That created the crisis we have and everybody was trying to get into a house at unrealistic prices, unrealistic rates. Now you have too many people hung out. And now the Fed has been trying to soften the recession or economic downturn but the effect of that is to increase inflation. 10 the reality is more people are impacted by the price of gas or the price of milk than the home mortgage situation. We've only had 1\% to 2\% of homes foreclosed on. That's too many compared to other things we deal with. In my view, the Fed should be far more focused on inflation than the bailout on some of the folks that got overextended.

Ted Simons:
Where was federal oversight, any oversight, on some of the companies? The bear sterns of the world, where was that?

Jon Kyl:
There wasn't any over that entity. An entity like Bear Sterns and other funding entities there's much less regulation. Part of what congress is looking at now is how to ensure pricing in the market so people will have an idea of the value of what they are buying. The hedge funds they are using, for example, it's very clear that the rating agencies, the banking houses, the hedge funds and others have to do a better job at pricing so people will know what they are getting and understand the value and not put good money against poor value.

Ted Simons:
A general question on the economy. Critics of the Bush administration say deregulation, tax cuts and all these things were supposed to help the economy.

Jon Kyl: And they did.

Ted Simons: If we have a problem now, what happened?

Jon Kyl: We would be in terrible shape if we hadn't cut taxes. The Bush tax cuts especially in 2003 enabled us to walk away from the recession that began in the last three or four months of the Clinton administration. It had one of the longest sustained growths in the country. It led to the problem because it was a hot economy. The Fed let interest rates get too low. That's what began the problem that we have right now. The last thing you want to do in times of recession or economic slow down is impose more taxes on people. That's precisely what the Democrat budget that was passed this last weekend in congress would do. It's precisely what the two Democratic candidates say they would do and precisely what John McCain says he would never allow to happen. The biggest thing we could do for creditability of the economy and dollar and make it crystal clear we will not let the tax rates expire. If they are allowed to expire, you will see the largest tax increase in the history of the country anywhere from $2,000 to $4,000 per family.

Ted Simons:
How difficult is to get that message across when all we hear now towards the end of the Bush administration we're in for a recession.

Jon Kyl:
It's perfect in a recession. You can't raise taxes in a recession. The idea is in a recession is let people keep their money. In the stimulus package they will spend $150 billion to send rebate checks so they have money to spend. No matter that came out of somebody's pocket. Bottom line is when a recession is coming on, the last thing you want to do is have higher tax rates. This election is critical. I don't mean to be partisan here. The reality is there's a big choice people have to make. If they want to have their taxes go up, there's one way to vote. If they want taxes to remain where they are, there's another way to vote. In an economy like this, the last thing you want is a tax increase.

Ted Simons: You mentioned John McCain candidate. How can he run on issues like the war and economy considering what's going on in Iraq? Some will say progress and some saying not enough progress and a lot of concerns on the economy.

Jon Kyl:
Fortunately his message is exactly right for both issues. He is the one who thought we needed more troops, recommended the surge and it turns out that he's right. You want a commander in chief that understands that kind of thing and has the courage of conviction to make that when it could have killed his chances. Everybody thought he was dead as a candidate. Turns out he was right and people respect the decision he made. On the economy, as I say, this will be a very clear choice on a group who wants to raise taxes and john McCain who wants to keep them where they are and in the case of corporate rate taxes reduce them. That would help in an economic downturn. He will not allow them to go up. That's a key issue in time of recession.

Ted Simons:
I want to touch on illegal immigration here. How much should feds reimburse states for the incarceration for undocumented immigrants that cause crime in this country?

Jon Kyl:
About $900 billion a year to be specific. I doubt the Congress will give that money to reimburse the states. The states bear a large burden because when illegal immigrants commit crimes, they do time in the state's facility. The federal government has seen in the past to reimburse part of that money 20-30\%. In the amount we are talking about is 40-50\%. That results in the states having larger costs and costs for reimbursing the medical expenses. We have to take care of them that's a federal law. We have to educate kids of illegal immigrants and other costs with it particularly the drug trade. All of these impose costs on our communities. That's one of the reasons the federal government needs to resolve this sooner rather than later.

Ted Simons:: Obviously, it's later and seems like always later when we talk about this particular issue. What do you think about states like Arizona passing their own guest worker program? Arizona and Colorado looking at this. It would result in patchwork laws around the country. Have it gotten to the point where something needs to be done?

Jon kyl: Yes, we have gotten to that point. I'm dubious that Arizona passing a guest worker program would be constitutional. The federal government has control over our visa system and I don't think the state can do that. The state did do something about the illegal employment situation and there were great cries against what occurred. But I think that if it's implemented properly and if the court decisions put the right kind of constraints on it, it can be effective in reducing the employment of illegals in the state of Arizona.

Ted Simons:
Back to the upcoming election, are the Republican voters and GOP in general, are Republicans ready for the concept of guest worker program? That was a divisive point within the GOP.

Jon Kyl:
It was. I think the answer is yes. I don't see any question about the need for a guest worker program. The question is, is it temporary? It must be temporary. That is say they can be here a limited time and then required to go home. Does it meet the exact employment needs we have? Americans should be given the opportunity to be employed first. If there's no American who will in fact work in the area or can then a temporary worker program is appropriate and the final thing is it shouldn't lead to citizenship. We don't bring them here temporarily and have a citizenship track for them. That's the whole point of the temporary worker program. That's how other countries do it and we can do that in the United States.

Ted Simons:
Arizona water settlement act. Talk about what was settled.

Jon Kyl:
We had the final celebration of it on Monday. That's great to have it behind us. The reality is we are going to face water issues in the state of Arizona because it's a scarce commodity and there are a lot of us and there's more in the future. In a nutshell, it helped between Indian tribes and city and Salt River Project and how to allocate the central Arizona water project area that had not been allocated and the dispute of how much money the Arizona state owes to the federal government. In addition to resolving all of the disputes in a favorable way I might add, we created a pool of water and money to fund additional Indian water settlements. We have two or three pretty large settlements to conclude in the state of Arizona. The White Mountain Apache tribe has been able to get resolved and I'm happy to move that forward. They desperately need a source of water to serve their community. This isn't a big project. This is the drinking water for folks in White River and places like that. They are moving forward rapidly and we hope to conclude an agreement with them and the settlement we finished will provide some of the money and water to do that.

Ted Simon:
Thank you for joining us.

Jon Kyl:
Thank you, Ted.

Ted Simons:
The latest on the state budget. And a look at the state's economy, unemployment and housing. That's Friday on the "journalists' roundtable." that's it for now. I'm Ted Simons. You have a great evening.


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