This is a rush transcript from "Special Report," December 18, 2018. This copy may not be in its final form and may be updated.

BAIER: This is a Fox News alert. Welcome to Washington. I'm Bret Baier.

President Trump's former national security advisor is not yet off the judicial hook for lying to the FBI. A federal judge today postponed his ruling in a very unusual sentencing hearing accusing Michael Flynn of selling out his country and expressing what he called his disgust and disdain.

Chief intelligence correspondent Catherine Herridge was in the courtroom for the stunning developments today. Good evening -- Catherine.


After a dramatic two-hour hearing, the Flynn sentencing was postponed at his request. The status report in 90 days pending further cooperation in a case unrelated to the special counsel and today the judge would not rule out jail time.


HERRIDGE: President Trump's former national security advisor Mike Flynn arrived with his wife by his side and his legal team.

On multiple occasions federal judge Emmet Sullivan pressed Flynn and his lawyers on whether he wanted to withdraw his guilty plea of lying to federal agents, or challenge the circumstances surrounding the January 2017 FBI interview.

Flynn was discouraged from having a lawyer present and not formally warned that false statements could be prosecuted. A critical moment came when Flynn told the court that he knew with the FBI asked him about the Russian ambassador and a December 2016 conversation about sanctions that his lies would be criminal and punishable.

The judge responded, "I can't hide my disgust, my disdain for your criminal offense. Not only did you lied to FBI, you lied to senior officials in the incoming administration."

He then asked, "Are you continuing to accept responsibility for his false statements?" Flynn replied, "I am your honor."

The judge seemed to chastise Flynn for making false statements in the West Wing including lies about the conversation to members of the Trump transition team and the Vice President and FBI.

"You sold out your country," the judge added.

Sullivan also questioned the basis of the case asking the special counsel's lawyer whether the Flynn phone call with the Russian ambassador was criminal. After a long pause, the government lawyer said it might be a violation of the Logan Act to which the judge seemed to laugh suggesting no one had ever been charged with that law criminalizing unauthorized contact by U.S. officials with foreign government.

President Trump tweeted good luck to Flynn before the sentencing and his aides slammed Flynn's treatment by the FBI.

SARAH HUCKABEE SANDERS, WHITE HOUSE PRESS SECRETARY: -- was certainly ambushed and that the FBI that we know had a clear political bias. We've seen that time and time again.

HERRIDGE: Legal experts say a three-month delay may help all sides.

ROBERT HAY, FORMER INDEPENDENT COUNSEL: I think there was just simply a pause today. The judge wanted to be sure that the defendant was pleading guilty because in fact he was guilty.


HERRIDGE: Judge Sullivan thought to clarify some of his actions today telling the court at no point were his questions meant to suggest Flynn committed treason. the special counsel lawyer said they have no reason to believe Flynn committed treason at all -- Bret.

BAIER: And Catherine -- new transcripts from the former FBI director tonight from Monday's testimony -- Jim Comey.

HERRIDGE: Well, that's right. There are a lot of nuggets in the Comey transcripts on Flynn. House Republicans Jim Jordan and Mark Meadows pressed Comey on why he didn't warn the President there may be a national security risk.

Quote Meadows: "You were so concerned that Michael Flynn may have lied or did lie to the Vice President of the United States but that once you got that confirmed, you didn't believe that it was appropriate to tell the President of the United States."

Mr. Comey: "That is correct. We had an open investigation, criminal investigation, counterintelligence investigation." He added, "There was no way I would discuss that with the President."

That's significant because the FBI director really has two hats -- one is building cases for prosecution and another is bearing a responsibility to warn if a government official poses, pardon me, a security threat. It's not clear from the transcript, Bret, why Comey chose that course of action here.

BAIER: Catherine -- thank you.

HERRIDGE: You're welcome.

BAIER: The top leaders in the U.S. Senate from both parties are at least talking to each other tonight about ways to avert a partial government shutdown. It could take effect at midnight Friday just three days before Christmas.

The administration says it's in regular contact with lawmakers and it's also looking for alternative means of funding border security. So where are we?

Chief White House correspondent John Roberts has the latest tonight from the north lawn. Good evening -- John.

JOHN ROBERTS, FOX NEWS CHIEF WHITE HOUSE CORRESPONDENT: Where are we?  That's a very good question tonight -- Bret.

The White House insists that there should be no question as to what the President will and will not accept when it comes to a spending bill and that the White House has made those demands very clear to lawmakers in the Senate.

But the White House also seemed to indicate today that the hard line it drew last week may not be so hard after all.


PRESIDENT DONALD TRUMP: We'll see what happens.  It's too early to say -- Sara.


ROBERTS: Just three days left until a partial government shutdown, Congress and the White House appeared no closer to finding a solution.

SANDERS: At this point, the Senate has turned out a lot of ideas. We are disappointed in the fact that they have yet to actually vote on something and pass something. So when they do that we'll make a determination on whether or not we're going to sign that.

ROBERTS: Among the proposals kicked around today, a spending measure that includes $1.6 billion for border wall funding plus another billion dollars in what Democrats described as an immigration slush fund -- a bill they say has no chance of seeing the light of day.

SEN. CHUCK SCHUMER, D-N.Y., SENATE MINORITY LEADER: I called leader McConnell and told him we would not accept their $1 billion slush fund and that our offers to fund the government remain.

Let me be clear. The Republican offer today would not pass either chamber.

ROBERTS: But the Senate Majority Leader insists they will find a way forward before Friday's deadline.

UNIDENTIFIED FEMALE: Are you convinced that we will not shut down over Christmas?


ROBERTS: President Trump has backed off his insistence that a congressional funding bill include $5 million for construction of a border wall in order to avoid a government shutdown at Christmas.

The White House today said it would be willing to accept less than that as long as it can find money elsewhere to build a border barrier.

SANDERS: We're looking at every avenue available to us possible. The President has asked every one of his cabinet secretaries to look for funding.

ROBERTS: One possible target -- take money from the military construction budget. The White House is looking for legal opinions as to whether funds already appropriated could be re-allocated.

SANDERS: There's certainly a number of different funding sources that we've identified that we can use, that we can couple with the money that would be given through congressional appropriations that would help us get to that $5 billion.

BILL HEMMER, FOX NEWS HOST: So you're exploring this and you think legally you could do it.

SANDERS: Absolutely.

ROBERTS: The presumed incoming speaker of the House said today if the President tries to move money around without coming to Congress, he's going to run into a fight.

REP. NANCY PELOSI, D-CALIF., HOUSE MINORITY LEADER: Well, we have to have congressional blessing for most re-programming.

ROBERTS: Democrats have also suggested a short-term funding measure that would avoid a Christmas shutdown and push the issue to the new year. The Senate Majority Leader today suggested the incoming speaker take the President's offer and start the new year with a clean slate.

MCCONNELL: If we end up going with a relatively short-term CR we will end up -- in effect punting this year's business into next year. I think it's not a very desirable outcome from anybody's point of view. I would think it would be the least desirable outcome for the incoming speaker's point of view.


ROBERTS: One of the big agenda items on the Democrats list for next year is investigations of all things Trump. Today the New York state attorney general announced an agreement to shut down and dismantle the Trump Foundation after a quote, "shocking pattern of illegality".

An attorney for the Trump Foundation disputed that claim saying that the attorney general had actually been blocking the shutdown of the foundation for nearly two years and denied that there was any wrongdoing on the part of the foundation. The investigation will continue -- Bret.

BAIER: John Roberts, live on the north lawn. John -- thank you.

Let's talk more about the budget standoff, criminal justice reform legislation and what's called opportunity zones.

South Carolina Republican Senator Tim Scott joins me here tonight.

Senator -- thanks for being here.

SEN. TIM SCOTT, R-S.C.: Thank you -- Bret. It's good to be with you.

BAIER: You heard John's report. Where are we tonight as far as Republicans in the Senate and the negotiation that's ongoing.

M1: I think the President is dead right. We have to make sure that we secure our borders. To be a sovereign nation you have to understand who is coming in and out of your country, so border security is his top priority and our top priority as well.

So to the extent that he finds a path forward, I'm going with him because if we do not, then we jeopardize national security. I think national security and border security should be synonyms.

BAIER: Even if that means a partial government shutdown ahead of Christmas.

I think whatever it takes for us to have a sovereign country also requires border security. I think we'll get the deal done. But the fact of the matter is a, the President likes the $1.6 billion; b, I think finding more money through reprogramming is a realistic expectation and an opportunity that he will take full advantage of which gives him more of the resources necessary to make sure that we secure our borders.

BAIER: Here is the house speaker-to-be possibly, house minority leader currently Nancy Pelosi today.


PELOS: We cannot accept the offer they made of a billion-dollar slush fund for the President to implement his very wrong immigration policies. So that won't happen.

We have to have congressional blessing for most re-programming but right now what they offered, we have not accepted.


BAIER: And so it sounds like a standoff is in the making. You're saying that a deal is possible.

SCOTT: Really possible. Nancy Pelosi wants to run the country, she's not even speaker yet much less president of the United States which thankfully she won't be. The reality of it is that we have the resources necessary and we need help from the other side.

They should as they did for President Obama, they were willing to give him $8 billion to construct a wall and to provide for border security. Why would they treat this president differently?

BAIER: So just to be clear, are you for a punt into the new year if it comes to that to kind of avoid the standoff?

SCOTT: I'm going to stand with the President as it relates to funding the wall. And to the extent that we get that done, I think we're all in better shape. What happens between now and Friday is incredibly important but getting there I think must have some resources to fund the wall that he knows and I agree with him that we have to have.

BAIER: One thing the President is pushing as well as his son-in-law Jared Kushner is criminal justice reform. There is First Step Act. You're a big proponent of this. There is push back in the Senate, one of your colleagues Senator Tom Cotton said this.


SEN. TOM COTTO, R-ARK.: We have amendments pending. Every Senator is meant to (INAUDIBLE) those amendments and decide whether they want to let child molesters out early and whether they want to support victims' rights.


BAIER: What's the status of that legislation?

SCOTT: Well a, I think fearmongering is the lowest common denominator in politics. That's not new. The status is the legislation continues to move forward. What we should think about is the fact this is really community justice reform bill. I say that because 76 percent of the time within five years the prisoner is committing another crime

What this actually does is it takes the model of Texas, Georgia, and South Carolina and we reduce the number of crimes committed by folks who come back to the community so it improves community safety. So if you are for community safety going up, you're for this bill. If you're for the status quo you may not like this bill.

BAIER: So are the votes there?

SCOTT: I think the votes are there without any question. There are at least 65 senators who have already said a hard yes to this bill. But most importantly the President of the United States has come forward and encouraged Mitch McConnell to have a vote on the bill. That's why we're having a vote and he, of course, is not soft on crime.

BAIER: All right. We are going to track that and obviously these amendments are going through right now.

The other issue, and you saw the video there, are these opportunity zones.  You've been a real proponent of this. The President signed an executive order just last week. Explain to people what this is and how significant it is from your point of view.

SCOTT: Bret -- I was a kid who grew up in a single-parent household mired in poverty. What this bill does is it says to kids like me that there is reason to be more hopeful this year than ever because President Trump has decided to focus more resources in the private sector to descend upon communities that are distressed.

This is not a new government program and there are no new bureaucrats.  This is simply redirecting private sector capital into areas where the average poverty rate is 31 percent and providing an incentive through the tax code to develop property, to open businesses so that people can walk to work and have a more even recovery that we have been experiencing.

BAIER: And it didn't get a lot of coverage, frankly. Here is the former - - the founder of BET. He was a fund-raiser for Hillary Clinton -- Bob Johnson.


BOB JOHNSON, FOUNDER, BET: This program with a tax incentive going out of the Treasury Department to business people will cause people to invest money where before they saw risk, now they will see opportunity.


BAIER: I mean you see real opportunity for these communities who haven't seen a lot of incentives.

SCOTT: Absolutely. I had a meeting with Steven Mnuchin, our Secretary of the Treasury and he suggested that there is approximately $100 billion that could be deployed into these communities in 2019. There's real dollars which means that we'll have more development and frankly more development also means more revenue to the government because these areas are maybe blighted today will be developed tomorrow which means that the resources coming to the government will increase, resources going into the community will increase and employment rates which according -- because of President Trump, we have the best reporting on unemployment in the African-American community and the Hispanic community. Those numbers will even get better.

BAIER: There's an AP report that says 8,700 opportunity zones across the country. The coverage it did get really fell on the fact that there was a real estate platform, a crowdfunding platform that owned partially by Jared and Josh Kushner that is investing in this. Is that a problem at all?

SCOTT: It's not a problem at all. Unfortunately what the media does is they see Donald Trump and they look for ways to attack, even good legislation that is supported in a bipartisan fashion, certainly this legislation was supported by all the Republicans because we passed it. Now the Democrats in the Senate as well as the House and mayors around the country are coming forward to take advantage of this fantastic legislation that provides real hope for communities that today are impoverished.

BAIER: Senator Scott -- we appreciate your time.

SCOTT: Absolutely. Look forward to coming back.

BAIER: Thank you.

Senator Scott is going to have a new co-worker in the Senate. Arizona Republican Governor Doug Sucey has named GOP Congresswoman Martha McSally to replace Jon Kyl in the Senate seat that belonged to the late John McCain.

McSally will take over as Kyl's -- after Kyl's resignation becomes effective December 31st. McSally lost the election for Arizona's other Senate seat to Democratic Congresswoman Kyrsten Sinema, you may remember in November.

Up next, President Trump launches the new space command, we'll tell you what that means.

First, here's what some of our Fox affiliates around the country are covering tonight.

Fox 32 in Chicago with the death of two Chicago police officers. They died when they were struck by a South Shore Line train Monday evening as they chased an armed suspect. Police officials says a suspect was taken into custody and a gun recovered at that scene.

Fox 2 in San Francisco as another effort to allow bars and some California cities to sell alcohol for an additional two hours until four in the morning is expected to be reintroduced today. That bill would be in effect in nine cities if passed. It would reportedly apply only to bars and restaurants in San Francisco, Oakland, Sacramento and at six cities in southern California.

And this is a live look at Detroit from our affiliate Fox 2. One of the big stories there tonight, General Motors saying it will cut 50 jobs at a suburban Detroit lithium ion battery assembly plant. This comes after GM's announcement last month. It will end production of its plug-in hybrid Chevy Volt in 2019.

That's tonight's live look outside the Beltway from SPECIAL REPORT.

We'll be right back.


BAIER: President Trump has lit the bureaucratic fuse for his new space command but the idea comes with a hefty price tag and plenty of critics.

National security correspondent Jennifer Griffin looks at both sides tonight from the Pentagon.


VICE PRESIDENT MIKE PENCE: This space command will be the 11th combatant command in the U.S. Military.

JENNIFER GRIFFIN, FOX NEWS NATIONAL SECURITY CORRESPONDENT: The announcement was timed to coincide with the launch of the SpaceX Falcon Nine, a long-delayed $500 million GPS satellite for the U.S. military. But the mission was aborted until Wednesday.

PENCE: I can assure you that space is a priority of this president and of this vice president.

GRIFFIN: The President's memo establishing the command is an effort to consolidate the military space operations and defend U.S. assets in space.  Satellites the U.S. relies on for navigation, communication, and surveillance.

The new command is expected to cost about $800 million over the next five years.

PENCE: As the President said and as you all well know, space is, in his words, a war-fighting domain. China has tested missiles designed to destroy satellites. China and Russia are working to station new weapons directly in space.

GRIFFIN: The space command is the first step toward President Trump's Space Force which at first the Pentagon resisted.

TRUMP: At my direction, the Pentagon is now working to create the sixth branch of the American Armed Forces called the Space Force.

GRIFFIN: The Air Force which oversees space for the military initially opposed the President's idea.

DEBORAH LEE JAMES, FORMER AIR FORCE SECRETARY: I am absolutely in favor of a separate space command to provide that war fighting focus but I am not in favor of a separate space force, a separate military service. It's bureaucratically complicated. It will be expensive. It's not necessary.


GRIFFIN: The U.S. military had a space command from 1985 to 2002 but it was disbanded after 9/11 so that Northern Command could be set up to defend the homeland -- Bret.

BAIER: Jennifer Griffin at the Pentagon. Jennifer -- thank you.

Russian President Vladimir Putin says he has weapons so sophisticated no one else in the world can match them or defend against them. As part of a continuing fallout from a U.S. threat to withdraw from a major weapons treaty, because of alleged Russian cheating.

Senior foreign affairs correspondent Amy Kellogg takes a look tonight.


AMY KELLOGG, FOX NEWS SENIOR FOREIGN AFFAIRS CORRESPONDENT: With the clock ticking down on the 60-day window given to Russia by the U.S. earlier this month to come into compliance with the Intermediate-range Nuclear Forces Treaty, President Putin today did nothing but flex military muscle.

VLADIMIR PUTIN, RUSSIAN PRESIDENT (through translator): Basically we already have everything but if someone tries to scare us, well, we would have to respond in a commensurate manner.

KELLOGG: The 1987 INF treaty bans land-based missiles with a range of 300 to 3,400 miles. Before his assembled military brass, Putin denied violating the treaty while boasting about his newest missile kinjal technically within the rules but according to Putin a game changer.

PUTIN: Kinjal is a hypersonic missile, more than mach ten. Nobody has it yet and we have it.

KELLLOG: It was one of a whole raft of nuclear capable weapons unveiled by Putin last March, weapons he bragged could not be intercepted. But the jury is still out on how viable all those weapons are.

MICHAEL ELLEMAN, INTERNATIONAL INSTITUTE FOR STRATEGIC STUDIES: There is certainly some bluster involved, you know, in the past, the Russians never revealed what they were developing. I mean this is part of the messaging.

KELLOGG: Messaging that Russia may no longer be one of two superpowers but it is on par with U.S. capabilities.

Despite apparent Russian violations of INF, some question the wisdom of ditching it worrying it will mean the end of another landmark treaty New Start.

ELLEMAN: And that sets us on a very unpredictable path and it could get very expensive and it could result in I think some very precarious circumstances in the future.


KELLOGG: The New Start treaty puts a cap on the number of nuclear warheads each side is able to deploy and it is up for renewal in 2021 -- Bret.

BAIER: Amy Kellogg in London. Amy -- thanks.

Up next, the Trump administration is declaring war on e-cigarettes marketed to young people.

First, beyond our borders tonight.

A man suspected of supplying the gun used in that Christmas market shooting attack that killed five people in Strasbourg, France is now facing terror charges. The suspected attacker was killed in a shoot-out with police Thursday.

Czech Republic's prime minister has ordered his government office to stop using mobile phones by Chinese telecom company Huawei. The announcement comes a day after the country's national cyber and information security agency warned the hardware and software made by Huawei and another Chinese telecommunications company ZTE pose a security threat.

Japan plans its first aircraft carrier and big increases in defense spending and weapons capability in coming years, according to Japanese authorities. New guidelines approved today cite Japan's need to counter potential threats from North Korea and China and other vulnerabilities.

Just some of the other stories beyond our borders tonight.

We'll be right back.


BAIER: This is a Fox News alert.

A federal court has denied a motion from an unnamed foreign corporation challenging a subpoena demanding information for the federal grand jury impaneled by special counsel Robert Mueller. This entire case is still secret.

The company contended compliance would violate its own country's laws. We don't know the country. We don't know the company. The court though disagreed and is holding this company in contempt for failing to produce information. The company is now appealing. Again it's a win for Robert Mueller in court.

The U.S. is pledging $5.8 billion in aid for strengthening government and economic development in Central America. It will also give another $4.8 billion in development aid for southern Mexico. The goal here is to promote better security conditions and job opportunities as part of a regional plan to encourage Central Americans to remain in their countries and not to try to immigrate.

The U.S. Surgeon General says if you have young children or teenagers, you need to talk to them about e-cigarettes. The Trump administration says their use among youngsters has reached epidemic proportions. Correspondent Kevin Corke at the White House tonight looks at what the government plans to do about it.


DR. JEROME ADAMS, SURGEON GENERAL: They are not safe, they are not cool, and they can cause long-term problems in terms of learning, attention, memory, and priming the brain towards addiction.

KEVIN CORKE, FOX NEWS CORRESPONDENT: It was a dire warning from the government's top doctor about the increasing popularity of e-cigarettes among American school aged children, a rise threatening to undermine decades of declines in tobacco use. An estimated 3.6 million U.S. teens use e-cigarettes, that's one in five high school students and one in 20 middle schoolers. Critics argue the industry has masked the dangers of their products as knowingly marketed to children. E-cigarettes can look like USB flash drives, making them easy to conceal, and they come in a variety of sweet flavors.

SARAH RYAN, TOBACCO CONTROL ADVOCATE: Some of the products are so clearly marketed to youth because of the way -- they taste like sour patch kids and they taste like airheads and they taste like things that kids use.

CORKE: And they remain incredibly potent. Juul, which claims more than a 70 percent share of the e-cigarette market, makes pods that contain about as much nicotine as a pack of 20 regular cigarettes. A spokesperson for the company said in a statement "Our intent was never to have youth use Juul products. We've taken dramatic action to contribute to solve this problem." Some analysts believe that in its zeal to reduce overall tobacco use, the government is unfairly targeting e-cigarette makers.

MICHELLE MINTON, COMPETITIVE ENTERPRISE INSTITUTE: The government for some reason has been targeting e-cigarettes because they seem to believe that it will lead to renormalization of smoking or increased smoking. But there's no evidence of that. All the evidence seems to show that the availability of e-cigarettes has reduced smoking.


CORKE: Bret, to curb the troubling trend, the FDA plans to ban the sale of so-called flavored e-cigarettes in gas stations and convenience stores around the country.

BAIER: Kevin Corke in the White House briefing room. Kevin, thanks.

The Trump administration is officially banning bump stocks which allow semiautomatic weapons to fire rapidly like automatic firearms. The devices will be banned under the federal law that prohibits machine guns. It takes effect in late March, after that it will be illegal to possess bump stocks.

The Dow finished ahead 83 today after losing 1,000 points in the previous two trading days. This comes ahead of an unexpected interest rate hike Wednesday by the Federal Reserve. The S&P 500 gained a fraction. The S&P 500 was just up slightly and the Nasdaq was up 30. It's expected that interest rate, but we don't know yet from the Fed.

A bizarre scene at the Michael Flynn non-sentencing today. We'll talk about all of that with the panel when we come back.

But first, Penny Marshall, who starred in the TV comedy "Laverne and Shirley" before becoming one of the top grossing female film directors in Hollywood, has died. Marshall's publicist says she died in her Los Angeles home Monday due to complications from diabetes. Marshall starred alongside Cindy Williams in "Laverne and Shirley" from 1976 to 1983. She then became the first woman to direct a film to grossed more than $100 million with "Big" starring Tom Hanks. She also directed "A League of Their Own," "Jumping Jack Flash," and "Awakenings." Penny Marshall was 75.



SARAH SANDERS, WHITE HOUSE PRESS SECRETARY: The delay is something between General Flynn and of the courts, and that's something for them to determine what that timeline looks like.

UNIDENTIFIED MALE: What about the inquiry as to whether he committed treason? Does the president see any reason why Flynn should be asked if he committed treason?

SANDERS: I'm not aware of anything that would know of that would indicate that.

We're disputing that any actions he engaged in had nothing to do with the president. Just because maybe he did do those things, but that doesn't have anything to do with the president directly.


BAIER: The White House today reacting to the sentencing from Michael Flynn being delayed, really, until March, but a lot of back and forth in the courtroom that got picked up. The former national security adviser saying "I would like to proceed, your honor." The judge, Sullivan, "Because you're guilty of this offense?" Michael Flynn, "Yes, your honor." "Are you continuing to accept responsibility for his false statements." "I am, your honor," Michael Flynn.

The bottom line, for all that was said about him being cornered or the FBI not acting right, he had the opportunity to take back his plea, and he said no, I want to move forward. Let's start there with the panel, Byron York, chief political correspondent for the Washington Examiner. Mara Liasson, national political correspondent for National Public Radio, and Katie Pavlich, news editor at Byron, your thoughts on all this?

BYRON YORK, CHIEF POLITICAL CORRESPONDENT, WASHINGTON EXAMINER: It was a weird day, and it was a bad day for Michael Flynn. He goes into court thinking that it's basically a formality. The prosecutor has recommended no time in jail for him, have a little meeting, say you're guilty again, walk out, no time in prison, move on with your life. Before it was over the judge had raised this question over whether Flynn had committed treason, which was outrageous, especially coming from a federal judge on the bench, had suggested maybe Flynn had sold out his country and that he was on unregistered foreign agent inside the White House, which he was not.

BAIER: But wasn't he talking about the allegations about the ties to Turkey?

YORK: Well, a judge can bring up uncharged conduct in a sentencing case, but to suggest that he was an unregistered foreign agent in the White House was false because even the prosecutor, I believe, corrected the judge to say that that had ended before. So by the end of the day it was this weird situation in which all of these things had been raised, it was almost like the craziness of the whole Trump debate moved into the courtroom for a day, and Michael Flynn future is completely uncertain now.

BAIER: On hold until March. Mara?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO:  Yes, on hold until March. For a while it looked like the judge was concerned that Michael Flynn was pleading guilty to something that he wasn't guilty of. And then he suggested that he was guilty of things that he hadn't been charged with yet. So yes, very confusing, but the bottom line is this goes on until March, and that's a pretty long time.

BAIER: Here is Sarah Sanders and the former FBI director, James Comey.


SARAH SANDERS, WHITE HOUSE PRESS SECRETARY: The FBI broke every standard protocol that they have, and we know that because James Comey's actual comment that they threw FBI protocol out the window for one reason and one reason only -- because it was the Trump administration and they thought they could and they thought they could get away with it.

JAMES COMEY, FORMER FBI DIRECTOR: They are up here attacking the FBI's investigation of a guy who pled guilty to lying to the FBI. He should have been warned you shouldn't lie, he should have been told you can have a lawyer. Think of the state of affairs we've ended up in. That's nonsense.  I'm very proud of the way the FBI conducted itself.


BAIER: The judge, to Mara's point, did go down that road, Katie, in this.

KATIE PAVLICH, NEWS EDITOR, TOWNHALL.COM: But again, the comments by James Comey to assert that someone maybe shouldn't be told that they are allowed and have a right to an attorney, that is not just alarming for Michael Flynn who is a high-profile person, that is alarming for everybody who's watching those comments and anybody who ever gets into any kind of situation where they have to discuss with the FBI.

But going to the White House today and the comments that Sarah Sanders made about Michael Flynn, for the first time somewhat distancing themselves from him, saying there are concerns about what happened in the courtroom. My question is whether President Trump still stands by firing and asking for his resignation when he found out about these comments that were given to Vice President Mike Pence and then being inaccurate or, as we know now, lies. And so the White House continues to back Michael Flynn through the president as he tweet said this morning. But in terms of whether there is a consistency of what was said, that's still to be determined.

BAIER: Here's our friend Jonathan Turley after reading the documents called the 302s surrounding this case.


JONATHAN TURLEY, GEORGE WASHINGTON UNIVERSITY: When you read these 302s, this is a rather anemic crime that borders on the pathetic. He gets a call on vacation. He talks to this Russian ambassador. None of that was particularly strange or unprecedented, and certainly not unlawful.


BAIER: The whole thing is just weird.

LIASSON: Except for in those 302s you do see the FBI agents giving him a chance to refresh his memory. They weren't leading him down the road.  They were saying, are you sure?

BAIER: But then in court they said was it unlawful? And they said, well, he could have violated the Logan Act. The Logan Act is like --

YORK: Apparently the judge kind of laughed at that. I got the impression reading the 302s that prosecuting Flynn was a judgment call looking at that. And the FBI and the Justice Department made one judgment to begin with up until about May of 2017, which was not to prosecute them. And then after Mueller -- that's pre-Mueller, post-Mueller, wham, he's pleading guilty by December of that year.

PAVLICH: Going into the hearing today, after last week there was talk of the judge being more sympathetic towards Michael Flynn. And they leave the courtroom today with prison time possibly on the table with what the judge said. And I want to go back to what Byron said initially. The judge knows that this is one of the most high-profile cases that has been in the public atmosphere in a very long time, and for him to state things publicly when the room is packed full of reporters and everybody is watching of things that aren't true and then he has to walk them back, insinuating treason, is pretty reckless.

BAIER: Final thing. Does anybody on this panel think the Mueller investigation, the probe, the report is coming up before the end of the year?



BAIER: Down the row, no?

YORK: It is the 18th of December -- no.

BAIER: No way. OK, no way.

Coming up, the shutdown, the latest on the possible partial government shutdown in three days.



PRESIDENT DONALD TRUMP: We'll see what happens.


TRUMP: It's too early, too early to say. Thank you.

SARAH SANDERS, WHITE HOUSE PRESS SECRETARY: We would like to see Congress pass an appropriations bill that fully funds our government.

MCCONNELL: I've heard back from Senator Schumer that the offer was not acceptable. And so now I'm in consultation with the White House about the way forward. I might say the administration has been extremely flexible on this issue.

SEN. CHUCK SCHUMER, D-N.Y., SENATE MINORITY LEADER: The Republican offer today would not pass either chamber.

REP. NANCY PELOSI, D-CALIF., HOUSE MINORITY LEADER: Right now what they offered, we have not accepted. And I don't know what the path might be, at, but it might be a CR, a shorter-term CR.


BAIER: We'll take a live look at the Senate floor right now, and they are discussing all kinds of things. Senator Chuck Grassley on the floor. They are actually talking about the criminal justice reform bill, and just a few moments ago Senator Dick Durbin, Democrat from Illinois, said they are very close to reaching an agreement to vote on that bill tonight. And you heard from Senator Scott earlier on this show that they believe they do have the votes to pass that. So that's one element.

The other one is this possible government shutdown, a partial, and where the way forward is. Back with the panel. Mara, it doesn't seem like they are making a lot of headway, but I think the White House may think that they can move money around and still declare a win.

LIASSON: Yes. The White House thinks there's money to be had. As Sarah Sanders said, we're asking every cabinet head to find some many that they can spend on border security. I think a little bit of progress is being made. The president did not say the word w-a-l-l today. He said "border security." That's generally a sign of flexibility. And it sounds like they could work something out, but exactly how they do that remains to be seen.

BAIER: Katie?

PAVLICH: The White House today is punting it back to the House and the Senate, essentially saying do your job. You know what we want, you know what we put on the table. It's up to you guys to figure out what you're going to do and come to us with an offer, and then the president will decide what he's willing to work with.

On the wall, of course that is an issue that is not just a current issue for the president but it's a campaign issue past and present that he is going to need to fulfill in some way. And when it comes down to this current situation, he is going to have to decide what he can live with in terms of governing and what he can keep up with on the campaign trail in terms of promises.

BAIER: But what about this shell game? Take a listen to Sarah Sanders and the Senate minority leader.


SARAH SANDERS, WHITE HOUSE PRESS SECRETARY: We are looking at existing funding through other agencies that we can draw on to do that in the -- immediately. The president has been clear -- the president has been clear that the USMCA deal that would provide additional revenue through that deal that would show that Mexico is paying for the wall.

SEN. CHUCK SCHUMER, D-N.Y., SENATE MINORITY LEADER: They need Congressional approval, they're not getting it for the wall, plain and simple.


BAIER: It sounds like a fight here. When she says USMCA, this is the NAFTA under another title. The White House is saying with the savings they got from redoing the NAFTA deal, that's what they're saying, Mexico is paying for the wall. Put that aside. Put that aside. Just say the shell game as far as moving money around.

YORK: First of all, remember where we started, which was getting $5 billion for the wall, which is just not going to happen right now. The idea of reprogramming the money is kind of an Obama-esque solution to this.  You basically go to all of the departments, look under the cushions for quarters and nickels and dimes and see what's there.

Now, what Nancy Pelosi is saying is when Congress appropriates money for a specific purpose, the executive branch can't just spend it for something else. They have to go back to Congress and ask that it be reprogrammed into a new purpose. Trump is clearly saying he's not going to do that. So we'll see, continuing fights.

One solution to this might be you said the w-a-l-l word. I heard Senator Durbin today speaking approvingly of a physical barrier at the border. If they can just avoid using the "w" word he might get some Democrats to support a 30-foot double fence, which is the equivalent of a wall.

BAIER: But isn't this kind of ridiculous, the semantics?

LIASSON: It's ridiculous, but I think --

BAIER: Hold on -- considering that a lot of these Democrats voted for comprehensive immigration in 2013 that included $8 billion for a w-a-l-l.

LIASSON: And were willing to give him the full funding for a wall in exchange for a DACA deal way back when. Look, the president needs to be able to say to his supporters I got the wall funding. They will probably believe him if he tells them that, but he needs something to show for it.

PAVLICH: It's not just going back to 2013. You go back all the way to 2006 when Chuck Schumer along with a number of his fellow Democrats voted in favor of the fence act. There is no difference between necessarily the wall and a fence in terms of what they are talking about with security.  There are a lot of similarities here.

I do think that Democrats are making a big mistake when they are calling President Trump's request for this money a slush fund, which, again, puts border security in the public sphere according to Democrats as something they're not taking seriously. And whether you are against a wall or whatever, the American people do believe in sovereignty and some kind of border security, and they know that there has to be some kind of fix when it comes to securing the southern border, and calling it a slush fund makes it not seem like a serious prospect for Democrats.

BAIER: Does the prospect of Nancy Pelosi having this issue on the first part of her likely taking over the gavel as House speaker a positive thing for Democrats or a negative thing?

YORK: I think the new class of Democrats who are coming in, the opposition to a wall funding will be even stronger than it was with the current class of Democrats. So I think it helps her. And the public is divided over this, and it does matter which words you use and polls and the like.

The one thing you are going to hear is everybody talk about how much they support border security. And if you are a conservative or pro-wall, the more you hear people talk about electronic measures and surveillance and things like that, the more you view it as a dodge to trying to build an actual, physical barrier.

BAIER: We did the story tonight. There is more money in the billions going to Central American aid for those countries to prevent or try to prevent people from emigrating here in the first place than there is allocated for border security in this country, currently.

LIASSON: He can get money for border security. The stumbling block for Democrats is giving him the wall.

PAVLICH: And apparently giving him the proper funding that border security or Border Patrol units on the ground are asking for, ICE agents. And again, let's not forget, this isn't just about border security, either.  This is about Congress changing the law so that asylum-seekers have a higher threshold because the Central American problem isn't necessarily a border barrier problem. It's also a problem with the current law which is not going to get changed.

LIASSON: But that's not part of the CR.

PAVLICH: Correct, but it's a bigger issue than just the funding for the wall in terms of President Trump moving forward.

BAIER: Partial government shutdown or not?

PAVLICH: I'm going to say no.



BAIER: I'm like zero for panel.


BAIER: When we come back -- thank you -- brightening spirits for kids in the hospital over the holidays.


BAIER: Finally tonight, a Michigan community helped spread light to hospitalized children. Each night this month for the holidays, people gather outside Beaumont Children's Hospital in Royal Oak for the event called "Moonbeams for Sweet Dreams." Patients shine a light from their room hospital window, and the community responds with flashlights and glow sticks and police lights. The event is held or to spread some love and light to children's whose hospital treatments are keeping them from being home for the holidays. That is pretty cool. We are with you.

Thanks for inviting us into your home tonight. That's it for this “Special Report,” fair, balanced, and unafraid. "The Story" hosted by Martha MacCallum up in New York starts right now. Hey, Martha.

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