RI lawmakers weigh 38 Studios debt default

RI lawmakers examine proposal to default on 38 Studios debt payments

Associated Press

PROVIDENCE, R.I. (AP) -- Rhode Island would default on the money it owes for its failed investment in former Red Sox pitcher Curt Schilling's bankrupt video game company, under a proposal examined by lawmakers on Tuesday.

The House Finance Committee reviewed a handful of bills that would prohibit the state or its Economic Development Corp. from making payments connected to the $75 million loan guarantee given to 38 Studios.

The idea is unlikely to take root in the General Assembly, and has a high-profile opponent in Gov. Lincoln Chafee, an independent, who has said the state must honor its debts. But the proposal highlights continued anger over 38 Studios that has been slow to subside.

The EDC board in 2010 approved the loan guarantee for 38 Studios with the hope of bringing high-paying jobs to the state. The company filed for bankruptcy last year, leaving the state on the hook for some $100 million.

Chafee's budget calls for the state to make a $2.5 million bond payment in the fiscal year beginning July 1, followed by annual payments of $12.5 million.

Supporters of defaulting said taxpayers shouldn't be forced to pay for the 38 Studios debacle. Rep. Karen MacBeth, D-Cumberland and a sponsor of one of the bills, said insurance on the bond will ensure bond holders get paid.

"The state of Rhode Island cannot afford to put this burden on the backs of the taxpayers," MacBeth told the committee. "Have the insurance company pay the bill. This is why we have insurance. The insurance company understood the risk. Now let them pay."

The EDC opposes the measure. In a letter to lawmakers, agency Chief of Staff John Pagliarini warned that defaulting on the bonds could make it harder to finance economic development projects and hurt the state's bond ratings.

Rep. Charlene Lima, D-Cranston and the sponsor of another default bill, said it was 38 Studios that gave Rhode Island a bad name and defaulting wouldn't make things worse.

"38 Studios was national news," Lima said. "It was such bad publicity and such an embarrassment. It's the reputation that this state has that only the politically connected get anywhere. It's all about insider deals. That's what's hurting economic development in our state."

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