$8.2B RI budget plan pays 38 Studios debt

PROVIDENCE, R.I. (AP) -- Rhode Island lawmakers will soon vote on a state budget proposal to increase education funding and set aside money to pay for its failed investment in 38 Studios following a key legislative endorsement.

The new $8.2 billion plan endorsed by the House budget committee Tuesday night contains no significant tax increases and boosts spending on public schools and higher education by $40 million. But it doesn't include Gov. Lincoln Chafee's call to reduce the corporate income tax and would cut $15 million the Democratic governor had hoped to divert to help struggling cities and towns.

With no new taxes and few controversial budget cuts, debate is likely to focus on the money the state owes for a loan guarantee given to 38 Studios, the video game company started by former Boston Red Sox pitcher Curt Schilling. Many lawmakers have called for the state to default on the $90 million in remaining payments related to the deal.

The House budget includes money for a $2.5 million payment due next May. House Finance Chairman Helio Melo, D-East Providence, said the state will have time to study its options further, and noted that the budget contains $50,000 for an analysis of the state's options.

Chafee, Moody's Investors Services and other bond experts warn that defaulting on the money will hurt the state's bond rating and significantly increase the cost of future borrowing for roads, buildings and other projects.

"Defaulting is a risky move because if we pay the obligation at least we know the cost," Melo said. "If we don't pay, the costs are uncertain. We will have a much better understanding of our options."

While Chafee, a Democrat, applauded the House budget plan for including the 38 Studios payment, he was disappointed to see other proposals from his administration rejected, according to spokeswoman Christine Hunsinger.

The centerpiece of the budget Chafee introduced in January was his call to cut the corporate income tax from 9 percent to 7 percent. He also wanted to spend $15 million more on aid to financially struggling municipalities.

"Rhode Island taxpayers and the cities and towns are the loser," said Hunsinger, who added that it was too soon to say whether Chafee would consider vetoing the House budget should it pass. "This legislature always seems to balance the budget on the backs of cities and towns."

The authors of the proposal cut Chafee's business tax reduction — and his call for more money for municipalities — after worse-than-expected revenue estimates created a $30 million gap in the budget.

"I feel just as bad that we weren't able to do it but we had to close a gap," Melo said. "Sometimes those initiatives have to wait."

The proposal includes $35 million for historic redevelopment tax credits, adds $4.5 million for workforce development and directs $2 million in additional help for the developmentally disabled.

It is likely lawmakers will tinker with the budget proposal again before holding a final vote. House Republican Leader Brian Newberry, of North Smithfield, predicted the most significant debate would continue to focus on the 38 Studios bond payment.

"Otherwise it's a very cautious budget," he said. "When the state is in financial difficulties we should take bold steps. These are just baby steps."