Following months of debate, Rhode Island lawmakers voted Wednesday to pay — for now — the debt it owes for its failed gamble on Curt Schilling's now bankrupt company 38 Studios.
The House of Representatives voted 53-19 Wednesday to set aside $2.5 million for a payment owed to bond holders for a $75 million loan guarantee given to the former Red Sox pitcher's video game company. The vote came after two days of bitter debate that reflects the still simmering anger over the 38 Studios debacle.
Many lawmakers want the state to default on the debt, arguing taxpayers shouldn't have to pay for the investment. But Gov. Lincoln Chafee, bond experts and top lawmakers predicted that defaulting would have disastrous consequences for the state's bond rating should the state default. One bond expert told lawmakers that no state had taken as similar action since former Confederate states following the Civil War.
The payment was included in an $8.2 billion state budget proposal that passed the House 52-20 — just two votes more than are required for a budget. The Senate is expected to take up the legislation on Thursday.
The spending plan contains no significant tax or fee increases, and boosts spending on public schools and higher education by $40 million.
It also calls to delay plans for a toll on the new Sakonnet River Bridge until at least February to give lawmakers time to look for alternatives. Residents and businesses complain that the toll, expected to start next month, would be a burden and hurt tourism.
Some lawmakers who favored defaulting on the 38 Studios bonds said the proposal to halt the toll was used to convince East Bay lawmakers to support the debt payment.
Lawmakers opposed to making the payment offered several amendments that would block the $2.5 million payment, or redirect the money to group homes or the developmentally disabled. Rep. Jim McLaughlin, D-Cumberland, said it made no sense to him to pay the investors who purchased 38 Studios bonds when there are unmet needs in Rhode Island.
"To hell with Wall Street," he said. "Let's look after main street."
The collapse of 38 Studios put the state on the hook for $112 million, including interest, with $90 million in outstanding payments. After the initial $2.5 million payment next year, the state plans to make annual payments of $12.5 million. The state's Economic Development Corp. Board approved the loan guarantee to 38 Studios in 2010 hoping to create high-paying jobs, but the company filed for bankruptcy last year.
House members who voted to include the payment said defaulting would hurt the state's bond rating and increase the cost of borrowing for roads, water systems, public university buildings and other projects.
"The state gambled on 38 Studios and lost," said Rep. Joseph Shekarchi, D-Warwick. "Where I grew up you pay your bills .... You make a mistake you say you're sorry. You learn from it."
The payment won't be made until May. The budget includes $50,000 to study the state's options in the hopes that the payment might be avoided, though critics were skeptical that would occur.
House budget deliberations broke down Wednesday morning when, in a rare act of defiance, rank-and-file lawmakers rejected a provision from top lawmakers that would have skipped a $12.9 contribution to the state pension system. Legislative leaders wanted to use the money to balance the budget, but opponents said it was wrong to set aside money for 38 Studios bonds while going back on promises to state workers and retirees.
The House later found the $12.9 million by freezing vacant state positions and cutting $3 million from a new road and bridge financing program created by state Treasurer Gina Raimondo.
The budget could go to a Senate vote as early as Thursday. The General Assembly hopes to adjourn before July 4, and the state's new fiscal year begins July 1.
Several proposals in Chafee's original budget recommendation were left out of the House budget plan, including his call to corporate income taxes from 9 to 7 percent over three years. The Democratic governor's budget also included $15 million more than the House budget in additional assistance for cities and towns.
"This budget is a compromise in difficult times," said House Majority Leader Nicholas Mattiello, D-Cranston. "It's the responsible thing to do."
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