Horizon, Host: Ted Simons

February 18, 2009


Host: Ted Simons

Legislative Update

  |   Video
  • Jim Small from the Arizona Capitol Times reports on the latest from the State Capitol.
Guests:
  • Jim Small - Reporter, Arizona Captiol Times
Category: Legislature

View Transcript
Ted Simons:
As state lawmakers look for ways to close a $3 billion budget gap, a temporary tax increase is one idea that's been getting some attention. Earlier I spoke with Arizona Capitol Times reporter Jim Small about that and other legislative news. Jim Small, thanks so much for joining us on "Horizon."

Jim Small:
Thanks for having me, Ted.

Ted Simons:
Reaction to the President's speech today: what did you see, what did you hear?

Jim Small:
The reaction was really mixed. In a lot of respects it broke down party lines. Democrats I spoke with were thrilled, frankly, with the message they heard. I heard the words "awesome" -- just well received. The crowd obviously really enjoyed what they heard. Some people saw the reaction from the crowd really as an indicator that people are waiting for some kind of help for homeowners. They've seen help to Wall Street, to different banks, helps to the auto -- help provided to the auto industry. And now it's finally coming back to the homeowners, which is where a lot of the problem in the economy started.

Ted Simons:
As far as lawmakers are concerned, what kind of response did you get from them? We talk about state lawmakers and some of our congressional delegation.

Jim Small:
You know, again, this is another thing where party affiliation seems to determine where people are falling on this. And their political philosophy. Republicans are wary at best about what the President proposed today. And I think that the real big concern is that this money is going to be used to bail out people and to help people who maybe knowingly gamed the system, or who refinanced their house, went out and paid for luxury items that maybe they didn't need, couldn't afford, and now the taxpayers are going to help these people subsidize the irresponsibility. I think that was one of the phrases I heard a number of times today. Democrats say, this is exactly what we need, this is going to help us pull out of this recession quicker, help stave off a number of foreclosures in the valley, thousands of them, possibly, and it's going to be beneficial to Arizona.

Ted Simons:
Let’s move to the federal stimulus package. We're still trying to figure out details, but it's sounds like we have committee meetings starting tomorrow?

Jim Small:
There's going to be a committee meeting tomorrow, the house and senate budget committees are going to get a hopefully detailed line by line breakdown of what's in the package for Arizona, what it takes for the state to qualify to receive this money, and really how much we're looking at for this fiscal year and the upcoming fiscal year.

Ted Simons:
Is there still some talk, I think I’m hearing a little bit of it, saying if there are strings and the strings are strong enough, attached to this bill, and this money, we don't want the money.

Jim Small:
There definitely is some talk within the Republican side of the aisle about exactly that, and it may not necessarily be an all or nothing. It may be limited to certain components, whether it's health care or education or some of the different social programs that are designed to help some of the poorer and the more middle class people in the state.

Ted Simons:
The concept of a temporary tax increase, I know it's kind of floating out there. Is it floating above water or is it starting to sink?

Jim Small:
Senator Pamela Gorman yesterday in caucus called it more of a lead balloon than a trial balloon. And I think that's generally been the reception among Republican lawmakers, and it will take Republican support to get this thing through if it's to move forward. There's concerns about what actually would happen if you increased taxes in bad economic times. There is another factor that you have most Republicans down there have signed a pledge to not raise taxes. And a lot of people will use that to say, not only can I not raise taxes, but I’m not going to support something that would possibly raise taxes, voters have to approve it. You're really in between a rock and a hard place. I don't think that there's much chance of this moving forward.

Ted Simons:
And even Democrats are saying, we don't think this kind of tax is going to work well in this kind of economy.

Jim Small:
Yeah. They're more staying away from the issue of whether they think a tax increase is needed or not. And instead they're pointing to comprehensive structural tax reform. Saying, look, there's a lot of inequities in our tax system, we need to sit down and work it out. They're planning on releasing a plan here soon, detailing exactly what it is we need to do. Republicans are working on a plan of their own, and the Democrats and Republican leadership are both saying, when everyone has their ducks in a row and they release their plans, we need to sit down and work this out and see if we can't take advantage of the bad economic times right now.

Ted Simons:
With that in mind, a special election, it is likely? Are you hearing it's possible? A, is it possible, and b, would it just be on removing voter protection act or could that sales tax be included?

Jim Small:
Certainly the sales tax could be included. I don't think that idea has been stamped out completely. But it -- the main focus amongst most Republicans at the capitol is to take some of the handcuffs off lawmakers and let them have access to some of the voter protected funding. There's a chance that they could hold an election really the idea was either May or June. It's almost impossible to get an election done by May, to set up a special election by May. So you're looking at June, and they probably need to act within the next month, maybe month and a half really to get that in order, so they can get ballots printed and get all of the technical aspects out of the way.

Ted Simons:
Last question, real quickly. Input by the governor down there. Are you hearing there's a lot of communication going on, not enough communication? What are you hearing?

Jim Small:
There seems to be a lot of frustration that there's not a lot of information coming out of the ninth floor, the governor's tower. Yesterday in the senate Republican caucus the frustrations came out and a number of members said they're not happy, the governor's office isn't moving very quickly, we don't know what's going on up there. And I think if that doesn't change, I think it's going to be an interesting next couple months for the legislative session.

Ted Simons:
All right. Jim, thank you so much for joining us.

Jim Small:
Thanks for having me, Ted.

Senator Kyl

  |   Video
  • U.S. Senator Jon Kyl offers his perspective on the economic stimulus plan and discusses other issues before the Senate.
Guests:
  • Jon Kyl - Arizona Senator
Category: Business/Economy

View Transcript
Ted Simons:
Good evening, and welcome to "Horizon." I’m Ted Simons. One day after signing a $787 billion economic stimulus package in Denver, President Obama was here in the valley, in Mesa, talking about his plan to slow the rate of foreclosures. Arizona is among a handful of states at the center of the nation's housing crisis. The President says his plan will help four to five million homeowners with mortgages through Fannie Mae and Freddie Mac refinance their loans at lower rates. And he says the plan will use incentives to encourage lenders to modify at-risks loans, reducing monthly payments to no more than 31% of a borrower's income.

Barack Obama:
The plan I’m announcing focuses on rescuing families who played by the rules and acted responsibly. By refinancing loans for millions of families in traditional mortgages who are under water or close to it, by modifying loans for families stuck in subprime mortgages they can't afford, as a result of skyrocketing interest rates or personal misfortune, and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments. Through this plan we will help between 7-9 million families restructure or refinance their mortgages so they can afford -- avoid foreclosure. And we're not just helping homeowners at risk of falling over the edge. We're preventing their neighbors from being pulled over that edge too. As default and foreclosures contribute to sinking home values and failing local businesses, and lost jobs. But I want to be very clear about what this plan will not do. It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators -- [applause] it will not help speculators who took risky bets on a rising market and bought homes not to live in, but to sell. [Applause] It will not help dishonest lenders who acted I responsibly, distorting the facts -- [Cheers and applause] distorting the facts and dismissing the fine print at the expense of buyers who didn't know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford. [Applause] I just want to make this clear -- this plan will not save every home. But it will give millions of families resigned to financial ruin a chance to rebuild. It will prevent the worse consequences of this crisis from wrecking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everybody. According to estimates by the Treasury Department, this plan could stop the slide in home prices due to neighboring foreclosures, by up to $6,000 per home.

Ted Simons:
A scheduled break this week on Capitol Hill allows Arizona senator Jon Kyl to join us to talk about the President's speech and other issues facing the nation. Senator, always good to see you. Thanks for joining with us.

Jon Kyl:
Thank you, Ted. Good to be with you.

Ted Simons:
Thoughts on this, what is it, $75 billion plan to fight foreclosures?

Jon Kyl:
It’s complicated. It’s going to be expensive. People are trying to sort through it to see how it would work. There are parts that might. I'm concerned about three specific things. One thing that is really raising eyebrows, if you have a Couple A and Couple B, Couple A got into a home they could afford, Couple B got in over their head, this plan would give them Couple B some subsidies, some incentives to keep paying their mortgage. Meanwhile, Couple A, who did the right thing, doesn't get that money from the government. That's raising eyebrows. There's an attempt here to work out mortgages. There's a little bit of a history to be looked at here. We've done that already with about 2 million mortgages, and with these folks who are in over their head, within 30 days about two-thirds of them are back in default or behind again, within 60 days over half of the people that had their mortgages reworked are now late again. The reality is, tough as it is, some people simply can't afford the size home they're in. The third thing, and this is really difficult, is the so-called cram-down. I didn't think he would actually promote that, but he's done it. And to make it very short, cram-down is where do you into bankruptcy and get a judge to relieve you of the obligation to pay most of your, or at least a big part of your mortgage. He literally writes down the interest rate on your loan. Everybody agrees the result is everybody else will have the interest increase order their loan, the bank needs to take care of the risk that is associated with the cram-down. So interest rates go up. That's not a good thing in this day's environment. Maybe some potential good, but there's matters of great concern.

Ted Simons:
I was going to say, there are some who are saying the plan doesn't go far enough. I know -- you probably think it goes a little too far in those three areas you mentioned. In other areas, is this still something that could work and could make a difference?

Jon Kyl:
It could. It is a little early to tell. Nobody -- I talked to folks back in Washington, they're still trying to sort through it to figure out how it would work. It is going to be very expensive. And so what we want to make sure of is, if there are good ideas, make sure that we're not spending a lot of money on something that won't work. I'm willing to spend some money because people are hurting. We had some good ideas when we debated the stimulus bill, and a couple of them would have been fairly expensive. But I think they would have worked. One of the ideas in his bill is sort of similar to one of those ideas, and I want to see how closely they match. But I am really concerned that he's moving forward in these other areas that I indicated.

Ted Simons:
Is it a reasonable first step?

Jon Kyl:
That remains to be seen. Nobody knows exactly what it will do and how it will do it and how much it will cost. There are a lot of details left out of it. I had one whole page of questions about how it was actually going to be implemented. And we need to see how they're going to deal with those things.

Ted Simons:
For those who say it doesn't go far enough, they look at the bank bailout and they say trillions go to Wall Street and financiers and lending institutions, and such, but a fraction of that goes toward homeowners who are needing their own bailout as well. How would you respond to that?

Jon Kyl:
Those are different purposes. The point of getting money into the financial institutions was not so much to help the financial institutions, as it was to enable them to help us. They can't lend any money to us if all of their credit is tied up because they hold all these toxic assets. By lending them money, and having the government take a position in the company, namely the government taxpayers eventually get our money back, you're giving them money which they can then use to get their financial books in shape so they can begin lending to us again. And that's just barely started. You've barely begun to see the lending take hold.

Ted Simons:
I was going to ask, are we starting to see a little bit of loosening of credit?

Jon Kyl:
Yes, just a little bit. But remember, the package was a $700 billion package. Only $350 billion was authorized to be spent. We just authorized the second $350 billion and it hasn't gone out yet.

Ted Simons:
Back to the foreclosure plan here from today. How do you make it so that folks who -- with reasonable mortgages, going along fine, lose their jobs, and a lot of people are losing their jobs. Now they're facing financial crisis, especially when it comes to homeownership. How do you make sure those people, who did play fair, who didn't buy too much, but lost their job in a terrible economy, how do you help them without having all the ramifications?

Jon Kyl:
We’ve had much higher unemployment in the 1980s, for example, than we do today. So this is not a new phenomenon that people lose their jobs and therefore have trouble paying their mortgages. The problem today is that you had far too many people getting into mortgages that they couldn't afford even in good situations, unless housing prices continued to climb. Obviously housing prices were not going to climb forever. And so when they stopped climbing and began going down, the amount of the mortgage frequently exceeded the value of the home. And frankly, there's a lot of fault to be assessed there. But that doesn't have anything to do with losing your job. When you lose your job, there are other ways to ameliorate the effects of that. Unemployment insurance is one. We increased unemployment insurance in the stimulus bill. The problem here is more a matter of people getting way over their head so that then when anything happened, like temporarily losing your job or a large medical event, they couldn't pay. You want enough to fall back on. Through most of our history, people have been able to fall back on things like unemployment insurance, savings, and so on, in order to continue to pay their mortgage.

Ted Simons:
But certainly this would be a different scenario considering it's on the end of a housing bubble. It would certainly change the dynamics a little bit, wouldn't it?

Jon Kyl:
Sure. You're exactly right. The question is, why did we have the housing bubble? You had lenders with a lot of money to lend, not being careful who they lent it to, and both lenders and borrowers figuring the value of the property is going to go up forever, so even though the borrower says I may be biting off more than I can chew, I don't need to worry, because in another six months the value of the home will be higher. That worked for several years. And then when the bubble burst, it didn't work anymore.

Ted Simons:
And people with derivatives of these mortgages say the same thing. Why worry, because it's going to go up.

Jon Kyl:
Right. And they're in bad shape too, and they've caused problems rippling throughout our economy.

Ted Simons:
Do you agree with the idea that when it comes to people who are speculating and investing, half a dozen homes here, half a dozen there, that they really don't need protection?

Jon Kyl:
Right. Absolutely true. None of the speculators -- but I ask for you, define for me -- I said Couple A and Couple B. Couple A bought within their means, clearly, Couple B decided property values are going to continue to go up, nothing down, a nice ARM with a low-interest rate, why don't we buy the more expensive home? The question is, why should the government then bail out this second couple and not do anything for the first couple, whose problem now may be that the values in their neighborhood are going down because of this other couple.

Ted Simons:
I think that's -- critics would say that would be the response. You may not like the idea of helping Couple B because they were knuckleheads. But, you're still Couple A, you still own your home and your neighborhood is going to be trashed if someone doesn't find Couple B’s home and decided to pay some money for it.

Jon Kyl:
That’s one argument. I think there's another argument which is people become responsible when they know there are adverse consequences to bad behavior, or to silly or stupid behavior. And there has to be some consequence here as well. We have a serious problem in our community in Arizona, because we rely so much on home construction, because we had such a hot market. But we do have to be careful that we don't reward bad behavior and make the people who are performing well pay the bills, in effect, for the bad behavior. Sometimes hard to distinguish between the speculator on the one hand and the people who were just speculating.

Ted Simons:
Last question on this. I want to get to the stimulus package. Do you have to -- in a situation like this, do you take a couple of these Couple Bs, the knuckleheads, do we take a couple of those and they're just going to have to benefit from this in order to save a lot of Couple As and their homes and neighborhoods?

Jon Kyl:
Again, that's one way to look at it. Unless you're spending such a large quantity of money over here -- and remember, the statistics are that within 60 days over half of these people are in default again. So the question is, could they really afford it in the first circumstance?

Ted Simons:
Let’s get to the stimulus package. $787 billion stimulus package. I know you weren't impressed, you didn't like it. Why?

Jon Kyl:
I was depressed by it! A variety of reasons. The simple reasons are this -- number one, it spent way too much money. Money that we don't have. It has to be borrowed. It wasn't focused, targeted on real job creation. So there's much wasteful spending in it. And third, there's some very bad permanent policy changes. We've created new government departments, we've created new mandatory, in other words, permanent spending in here. It's not just a couple of years of spending. The one year spending is about $800 billion, if you add in interest it's over a trillion. The 10-year is $3.27 trillion. And that's money that has to be -- that is committed in the bill over 10 years. We're not taking those commitments away. So you add the bad policy, the wastefulness of it, and the fact it's not going to create the jobs in an intelligent, efficient way, there's much to be opposed to.

Ted Simons:
Democrats say it primes the pump. They say it gets money into the system. Are they wrong?

Jon Kyl:
No. They're right. The question is, is it worth paying $600,000 for every new job in the government sector, for example? It's inefficient. Here's an example. 80% of the jobs in this country are created by small business. That's a good thing. Do you know how much of the relief -- the tax relief alone in this bill is committed to small business? One-half of 1%. In other words, the very folks that would really create the job, we don't pay any attention to them. Instead we go into areas where the unemployment rate is 3%. Government workers. Health care workers. We dump a lot of money into those areas. You don't have high unemployment in those areas. I would submit we don't need more government workers. But that's the way this bill is targeted. So it not only spends a lot of money, but it doesn't target it in an intelligent way.

Ted Simons:
With that in mind, should Arizona just say, no thanks, to this stimulus money?

Jon Kyl:
It depends. To the extent that the state of Arizona will have to expand the number of enrollees in programs like the Access program, or children's health insurance program, in order to get more federal money, then the governor, the legislature have to ask a very simple question -- is it worth it if we have to spend Arizona tax money to cover more people than we're covering today, and than we want to cover or intend to cover, just in order to get those federal dollars? Bottom line is, in some areas it will make sense, in other areas I would suggest it doesn't make sense.

Ted Simons:
Real quickly, the political aspect of this: we had a letter coming in from one of our viewers who knew you were going to be on the program tonight, and wrote in a question for you. He basically asks, why should we take your position on President Obama’s stimulus package seriously, when over the last eight years and you the other Republicans have presided over an increase in the national debt from $145 billion to over $1 trillion? Why do you gladly and repeatedly vote for deficit spending when President Bush does it and then balk when President Obama tries to do it? Isn't this just partisan politics as usual? That is Steve in Chandler. How would you respond?

Jon Kyl:
Steve in Chandler, no, I respectfully disagree with you. Let's go back to each of those items. We didn't preside over a doubling of the federal debt and then a doubling again. Democrats have been in charge of the congress the last two years. In those two years, the debt has doubled and then doubled again. It will double again in Obama’s first year because of the stimulus bill, and it is true that Republicans opposed a lot of that spending under President Bush, some of it was supported by Republicans. But when Democrats were in control, is when the budget deficit doubled twice. Now it's going to double again. So that's not the fault of Republicans. Secondly, there's a difference between deficit tax reduction and deficit spending. In both cases, in the first case you're forgoing revenue to the treasury to achieve a good result. Reducing taxes. Or at least keeping tax rates where they are today. Both because it helps people, and because they'll have more money then to spend, stimulating the economy. There's a difference between that and borrowing money to spend for government to spend. You'd like not to have a deficit in either situation, but one of them at least is based on the proposition that it will promote economic growth. And economic growth will produce revenues to the treasury which will then decrease the deficit. But economic growth is not created by this government spending. So there is a difference between the two.

Ted Simons:
Last question, 30 seconds left. In the spirit of that question, we get a lot of this as well, that the GOP Republicans don't even want this stimulus plan to work. Do you want the Obama stimulus plan to work?

Jon Kyl:
I want whatever we do to work to get out of this recession. But I think it is -- bipartisanship is great, but there's something else that's also good, and that is if you have two different groups that believe very different things, it's fair for one group to say the other group's plan is not going to work. It is not a good idea. If it works, then Obama will be rewarded and will his colleagues. If he's wrong, I think those of us who have said this was a bad idea, a trillion dollar gamble, then maybe voters would say maybe these guys know what's right after all.

Ted Simons:
All right. Senator, thank you so much for joining us.

Jon Kyl:
Thanks.

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