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Lawmakers Feel Duped by Schilling’s 38 Studios Deal

Monday, May 21, 2012


In an effort to further distance themselves from the deal that made it possible for former Red Sox pitcher Curt Schilling’s 38 Studios to receive a $75 million loan guarantee, both current and former lawmakers say they were blindsided by General Assembly leadership and never would have supported the legislation if they knew the funds would be directed toward one company.

The complaints came last week when the Economic Development Corporation (EDC) acknowledged that Schilling’s video game company defaulted on a $1.125 million payment that was due on May 1. 38 Studios executives met with EDC board members last Wednesday to discuss options for keeping the company solvent and the board is expected to continue those talks today.

By the end of last week, 38 Studios had made the late payment to the EDC, but the company was unable to pay its employees and Governor Chafee said he is against offering more state aid to help bailout the cash-strapped video game maker.

While General Assembly members did not vote to give 38 Studios the $75 million loan guarantee, they did vote in favor of expanding the state’s Job Creation Guaranty Program from $50 million to $125 million in May 2010. By September, the EDC had signed off on awarding Schilling’s company the massive guarantee and 38 Studios had already signed a lease to move into their offices at One Empire Plaza.

“I really feel the wool was pulled over my eyes, in retrospect,” said Woonsocket State Rep. John Brien, who chairs the House Municipal Government Committee chairman. “I feel I was sold a bill of goods. Never once did I hear anything about 38 Studios.”

A Favor Factory

Brien, who claims former House Finance chairman Steven Costantino convinced him to co-sponsor the legislation, says he thought providing more access to funding for small businesses seemed like the right the idea at the time. He said he didn’t know until after the bill had passed that most of the funds were essentially earmarked for 38 Studios. He said that once he saw that Rep. Helio Melo had signed on to support the bill, he was sold.

“Unfortunately, the road to hell is paved with good intentions,” Brien said in an interview last week.

The legislation was originally included as part of a supplemental budget that passed in the House but never made it out of the Senate. At the time, six Representatives (Rod Driver, Larry Ehrhardt, Robert Jacquard, Charlene Lima, Brian Newberry and Bob Watson) voted against the article in the budget.

“If you don't want it to be a favor factory, kill the article," Watson, who was serving as House Minority Leader, said at the time. “This is like an attractive nuisance for all sorts of skullduggery."

When the issue came up again in May of that year, Watson was the only Rep. to vote against the bill.

We Were Totally Blindsided

According to former State Rep. John Loughlin, who was running for Congress in 2010 and did not cast a vote on the bill, Costantino was specifically asked whether a specific company was being considered for the extra funds or if the bill was designed to benefit a number of small businesses.

“I recall the answer was ‘no, that no one company was in mind for this,’” Loughlin said Sunday.

Loughlin said that given the economic climate at the time, it made sense for the EDC to “thoroughly vet small and mid-sized Rhode Island companies and those who want to relocate here and to guarantee loans,” but he noted that he came out against this deal once it became clear that the funds were going to “be basically sucked up by one company.”

State Representative Charlene Lima was another lawmaker who raised serious concerns about which companies would receive the extra funds from the EDC. She proposed an amendment that would have required any elected official to disclose whether they had contacted the EDC on behalf of any business seeking funds, but it was soundly defeated.

“I was up on the floor against it, I just smelled something funny at the time,” Rep. Lima told GoLocalProv last Tuesday. “We were totally blindsided in the first place. We didn’t have all the information before we voted for it. Now look what happened. I’m just so appalled.”

Leaders Turn Blind Eye

Schilling’s company has burned through all of the $49.8 million in funds it received to finance the business. The rest of the money is dedicated to paying bondholders. According to Chafee, 38 Studios has applied for $8.7 million in 2011 tax credits and is seeking another $12 million in credits for 2012.

At the time, lawmakers also were not aware Schilling’s company would eventually need more than $20 million in tax credits. House Minority Leader Brian Newberry said last week that he believes many lawmakers would have raised more questions if they had more information about the agreement in the first place.

“I voted against the expansion of the Job Creation Guaranty Program at the time precisely because I didn’t know where the money was going and I’m always suspicious of any government’s ability to try and pick winners and losers,” Newberry said. “I would imagine many of my colleagues who voted for the program would have voted differently if they had known [where the money was going.]”

But Loughlin said the entire deal was all too typical for Rhode Island. He said onerous taxes, unfriendly and burdensome regulation and high energy costs have strained economic development in the state, but politicians have failed to address the real problems.

“That's what brings on these pie-in-the-sky, Hail Mary deals,” Loughlin said. “Fix the real problems and you don't need to swing for the fences. Imagine if we had indexed taxes and regulation to be less than our neighbors, we could and should be an island of economic activity. Instead, the [Speaker] Fox's, [Senate President] Paiva-Weeds and yes, Carcieri's of the world are content to turn a blind eye to the real issues and instead take enormous risks on really bad deals.”

Editor's Note: A correction has been made to reflect that Rep. Jon Brien was convinced to support the legislation by former House Finance Chairman Steven Costantino.

Dan McGowan can be reached at [email protected].


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Monday morning THIRD STRINGS QB's

Comment #1 by louis rizzo on 2012 05 21

RI politicians feel duped by the sun going down every night.
They're not the brightest bunch.

Comment #2 by pearl fanch on 2012 05 21

Tax credits... genera,,y, tend to reduce taxes owed.... only in some instances do they result in incoming cash flow for the entity that gets them.

Some tax credits may be for property taxes but this presumes a company with an industrial type plant where there would be sizeable property tax owed whether the company made money or not. These kind of credits have some value.

Most tax credits are merely a reduction in taxes owed on income... and that is net income and that is profit.

Well... a company that cannot figure out how to pay its employees is not making a profit and so will owe no income taxes... so the implication in this article that somehow these "tax credits" are some great lifeboat to buoy up this company is probably false.

The term "tax credits" with no explanation what kind of tax credit they are or what they offset in the way of taxes is more obfuscation than explanation.

Comment #3 by Caroline Evans on 2012 05 21

The one basic problem with these legislators is that they don't ask enough questions. If someone feels that something is not quite right, how can you vote for it? Because your party leaders says so?
Constantino is the big player here as he orchestrated this sell job on the House members. He needs to come clean! But even with this pitch man's selling tactics, if there is a doubt about a bill, don't vote for it - they can always bring it back with more details. Once voted for, it's gone. The bigger question at this stage is what is going on inside the RIEDC. How many more "deals" are in the works? How about an audit of that "corporation?"

Comment #4 by Lance Chappell on 2012 05 21

As to lawmakers who have been "duped"...

There are several interpretations and reasons for this and none of them reflect well on the "dupees".

If they really were duped.. they are morons who need guardians as they must be incredibly stupid to not know that this kind of hogwash is hosed around the statehouse like water at a mill fire.

More likely though... is they are so incredibly used to successfully using the "Duh.... I didn't know any better" excuses.

It is like people who drive for three years with no inspection sticker and then try to get the cop who finally pulls them over that they "forgot" and the "Sticker is just a little overdue, isn't it?"

This "dog ate my homework" line of excusemaking is epidemic and endemic in politics these days.. and it is especially the disease of the Democrats statewide and nationwide in the past decade.

The dog has eaten their homework so often that we must conclude they not only have frisky puppies but live in neighborhood stalked by packs of homework-hungry wolves.

Comment #5 by Caroline Evans on 2012 05 21

THEY feel duped? THEY feel duped? How do they feel the taxpayers feel every time we read of the back room deals and bonehead moves by the General Assembly? THEY feel duped?

Comment #6 by Tom Boland on 2012 05 21

Re former Rep Loughlin's comments that RI has onerous regulations, high taxes and high engergy costs - doesn't Massachusetts have about the same three problems?

Of course they do. MA companies complain too - however, small companies continue to be formed and succeed in the Bay State.

RI's real problem is that people who want to start businesses (other than hospitality) just don't do it her.

They go to MA or CT or elsewhere. Why is this so?

Comment #7 by Bob Washburn on 2012 05 21

One of the reasons they go elsewhere is that RI is well known to be run by goofballs whose actions and ideas are less than rational and unpredictable.

This unpredictability is made even worse for someone from elsewhere as they have not got th local background to anticipate it even as well as a lifer local can... and the lifer local may not know the details of the irrationality but they have some idea the RI flavors of lunatic irrationality and lowlife self-dealing that exists... and know the names of the-usual-suspects and the organizations that harbor them.

Even the corruption here is of low-quality... crooked nitwits will often corruptly influence things to throw zillions of dollars down the chute for absurdly tiny bribes and kickbacks considering the ruination they wreak in doing so.

Other times they boldly just TAKE zillions in openly, boldly and unabashedly and it is so open and bold no one does or says anything as it is so incredible no one can really take in what has happened while it is happening.

It is a state where truly subpar almost-mediocre people imagine themselves to be these uber-wizards who are far above and beyond everyone-else in ability.

They are so dense and unwitting that they think they are smart.

Do you think anyone from and honest part of the nation... or even from a place where the corrupt are at least predictably and rationally self-interested? Of course not.

Comment #8 by Caroline Evans on 2012 05 21

Do you think anyone will move here from and honest part of the nation... or even from a place where the corrupt are at least predictably and rationally self-interested? Of course not.

Comment #9 by Caroline Evans on 2012 05 21

Gee, that's really too bad they feel duped, Because I as a RI Taxpayer feel duped by every freakin idiot in that General ASSembly

Comment #10 by Bob Myron on 2012 05 21

Leaderless in RI, these want to be brains in RI are all pointing the fingers to others without looking in the mirror. The EDC is a bunch of pencil pushers for the GA, they do not have a PLAN other than to try to keep companies from leaving RI never mind trying to get new ones to come to RI. The GA top tier pushed the EDC to make this happen, no doubt about it.

Comment #11 by Gary Arnold on 2012 05 21

Politics as usual, when there is a bill on the floor over two pages the GA membership do not read it, they are too busy doing their own thing, whatever that is.
Forget about new business trying to get into RI, they will he scared sh-t and will find other states that have their stuff together.

Comment #12 by Gary Arnold on 2012 05 21

@Bob Washburn: We live in a comparative world. Companies in MA may complain about the business environment there, but the reality is that MA's business climate is rated far higher than RI's. Most New England companies won't pick up and re-locate to Virginia, Florida or North Carolina, but they can relocate elsewhere in New England. If you need any proof of the role a state's business climate plays in economic development, just take a look at Route 6 in Seekonk along the RI border. There is a reason why those businesses opted to open up on the MA side of the border and not the RI side.

Comment #13 by Todd B on 2012 05 21

I find it difficult to believe Rep. Brien was "duped" into thinking the money was going to be spent on a wide number of small businesses. Brien co-sponsored the bill. Earlier it was reported that Rep. Ehrhardt had proposed an amendment putting a $10M cap on the loans, but he said Keith Stokes urged him not to do so because it would hurt a deal under negotiation. If Brien didn't realize that much of the money was going to one deal at that point, it's his own fault.

Rep. Newberry wasn't duped-he voted against it. Rep. Loughlin appears to have not supported it. Rep. Watson wasn't duped-he voted against it. Strangely, Rep. Watson appears to have had the most realistic view of the situation. I'm not sure what it says when brightest RI legislator is the guy slamming drinks and toking up.

Comment #14 by Todd B on 2012 05 21

To Gary Arnold...
You are absolutely correct. You hit the nail on the head when you said this:
The GA top tier pushed the EDC to make this happen, no doubt about it.
Leaderless in RI, these want to be brains in RI are all pointing the fingers to others without looking in the mirror.

The top echelon in the General ASSembly knew starting from the top...Carcieri made the deal and had his flunkee Stokes present it to the EDC and in the Gen Assembly,
Speaker Fox knew and said nothing, and the same with Steve Constantino who was chair of the finance committee at the timeand rks for Chafee. Now that's a deal in itself!
Next in line on who knew about this deal was Helio Melo, who now is the current finance chair Constantino's replacement
Hmmmm, interesting how Hellio Melo followed his buddy Constantino to become chair of finance (another deal you think?) and last but not least...
there was Nick Mattiello, the Majority leader and Fox's close friend who believed this was a great plan and said so...
From Projo today:
House Majority Leader Nicholas Mattiello chimed in, telling lawmakers: “This is a great economic development tool…. This is job creation, economic development. It’s the beginning.”
Yea, with these Gen ASS people who were in on this deal, it's a beginning all right......
The beginning of people smartening up in November and throwing them all out.

Comment #15 by dis gusted on 2012 05 21

We get he Government We Deserve!

The entire GA needs to be voted out in November.

But it won't happen.

The RI electorate is just plain STUPID!!!

Fox, Paiva-Weed, Mattiello, DaPonte, Ruggerio, O'Neill...

They all all be back in January!!

Comment #16 by Fabiano Terrenni on 2012 05 21

@dis gusted: You forgot to mention that Mike Corso, the lawyer representing 38 Studios happens to be a friend and campaign contributor to Gordon Fox. Fox pushed the deal after meeting with Corso.

Comment #17 by Todd B on 2012 05 21

YOu are 100 percent right, Todd.
I apologize for not adding in Corso the lawyer friend of Fox whose office they met at in downtown Prov.
That's because Corso is not in the Gen ASSembly like Majority leader Mattiello or should I say Mattiell-NO, Paiva Weed, Fox, Constantino, DaPonte and Helio Melo..They all knew..They lie when they say they did not know..and they are making fools of RI voters.Now it's the voter's turn to throw them all out.
I truly hope the voters of RI remember these names and vote these law
makers out in November. They have too much power in the state house and they are not transparent in their dealings at all.
So we as voters need to be transparent and tell them they are gone when election day comes....

Comment #18 by dis gusted on 2012 05 21

I wonder how many of those googlie eyed boobs asked for his autograph?

Comment #19 by Mike Hamel on 2012 05 22

@dis gusted, word has it that Fox is not running for re-election. How interesting.....word has it that Melo is the heir apparent to the throne. He works for Jans Company i.e. Burger King. That should be interesting, at least the house will be flipping more than bad bills in the future.

Comment #20 by Lance Chappell on 2012 05 22

Please vote against anyone who was in the General Assembly when these votes were made. Those people are not qualified to manage the cash box at a kid's lemonade stand, much less managing billions of dollars for hard working RIers. If you don't like being ripped off like this, fight back with your vote!

Comment #21 by Captain Blacksocks on 2012 05 22

Gossip has it that Mattiello the majority leader did the bond work for Studio 38...can't prove the alleged rumor but maybe some one out there can!

Comment #22 by dis gusted on 2012 05 22

I forgot to tell you that Helio Melo's wife works for Sen
Jack Reed in his Cranston office. This state is just full of
incestuous relationships. No wonder Melo is being considered
for Fox's job should Fox leave. And is Fox leaving because
he knew the sh.... would hit the fan concerning 38 Studios?

Comment #23 by dis gusted on 2012 05 22

And the RI ethics committee is......where??????

Comment #24 by pearl fanch on 2012 05 23

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