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Bill to Stop 38 Studios Bond Repayment Gets Surprise Hearing

Monday, June 09, 2014

 

A bill to not pay the 38 Studios bond debt has been posted for House Finance on Tuesday June 10.

A bill to not make payment on the 38 Studios moral obligation bonds has been posted for the House Committee on Finance for Tuesday, June 10 -- much to the surprise of the bill sponsor.

"I found out about it [Sunday], when a colleague brought it to my attention," said Represenative Karen MacBeth of her bill, H7248, that was introduced on January 30, 2014. 

The agenda for Tuesday's Finance Committee hearing, which contained the legislative proposal, was posted on the General Assembly's Legislative Committee Calendar at 5:06 PM on Friday, June 6.

"Usually we know with much more time," continued MacBeth, who noted as of Sunday afternoon she had not gotten an e-mail notice -- and said that the situation was a "Catch-22" of her bill that states that Rhode Island "shall not make payment on the moral obligation bonds," after the budget voted out of House Finance contained $12.3 million for bond repayment. 

"To have it heard after the budget was posted...this was a major budget issue, and I think the general public had a right to testify before the budget," said MacBeth.  "I appreciate the hearing, but it's past the 11th hour now."

MacBeth said she hoped, however, that supporters would turn out at the hearing.  "If the general public shows up and has their say, their voice is going to be heard," said MacBeth. 

Concerns Continue

“Representatives MacBeth and Chippendale have been tireless in their efforts to uncover the truth about 38 Studios and to put the brakes on the effort to pay off the bonds when there are so many questions and concerns about the legality of this deal," said GOP gubernatorial candidate Ken Block.  "Unfortunately, the new Speaker seems willing ignore all that.  He is content to cave into bullying from the bond rating agencies and pay off the 38 Studios bonds. 

"But these rating agencies have a conflict of interest.  They need us to pay off the bonds because they don't want to be left explaining to investors why they gave those bonds such high ratings when they knew there was a chance the state would default because of all the controversy surrounding the deal," said Block. 

Block continued, "I have no doubt the Speaker is desperate to avoid a floor vote on Representative MacBeth's legislation and is going to try to kill it in committee, because he knows there is strong support for standing up for the taxpayers of Rhode Island and stopping the bond payments on 38 Studios.  I've called for an investigation by the US Attorney into this matter so we can send a strong message to the bond markets that we are serious about getting to the bottom of this matter and serious about protecting the rights of taxpayers in our state.”

Following a meeting with Moody's and Standard and Poors in May, House Speaker Nicholas Mattiello articulated his support for repaying the bonds. 

"I have come to the conclusion that it is absolutely in the state's best interests to include the repayment of the moral obligation bond contained within this year's budget," said Mattiello after the meeting.  "I am convinced that Rhode Island's bond rating will be substantially downgraded if we do not meet our obligations.  We have approximately $1.6 billion in bonded indebtedness, and a failure to pay would negatively impact the current interest rates and the rates of future bonds, as well as our access to capital.  I understand the taxpayers' frustration over the 38 Studios' debacle and we need to get to the bottom of it. But that is a separate issue. The persons responsible need to be held accountable in a court of law.  By making this bond payment, the state preserves the right to recover damages when the lawsuits are settled."

Cranston Mayor and GOP gubernatorial candidate Allan Fung is among those opposed to the bond repayments. 

"Let me be clear, I will continue to stand with the taxpayers of Rhode Island and oppose payment of the 38 Studios bonds. The state is pursuing legal action, which alleges misrepresentation and fraud. Additionally, this past Friday, I called on the SEC to investigate potential insider trading in the sale of one million dollars worth of bonds one day before 38 Studios closed its doors," said Fung. 

Fung continued, "While the current administration is content to pay bond holders with Rhode Island taxpayers' hard earned money, I will continue to stand with the taxpayers. Rhode Islanders deserve answers before we pay these bonds."

Select Commission Proposed for Investigation

Rep. Mike Chippendale's bill establishing a select commission on 38 Studios will also be heard on Tuesday.

On Tuesday, the House Finance Committee will also consider a proposal by Representative Michael Chippendale -- H7295 --  to establish a "select commission to investigate the failure of public loan guarantee programs."

"Please come out to the State House this Tuesday night to support Rep MacBeth and me. Our 38 Studios bills have been released from lock-down and are scheduled in Finance in Room 35 on Tuesday 6/10/2014 at the RISE of the House," Chippendale posted to his Facebook page on Sunday. 

Chippendale continued, "Rep Mac Beth's bill, H- 7248, would simply not allow the 38 Studios moral obligation bonds to be paid."

"My bill, H-7295, will create an official investigatory body that is charged with investigating - with all the tools necessary for a proper investigation, into the Job Guaranty Loan Program, the loans it gave out in its short life ESPECIALLY 38 Studios."

 

Related Slideshow: Who Wants to Pay and Who Wants to Default on the 38 Studios’ Bonds

GoLocalProv showcases which Rhode Island politicians and organizations want to pay or default on the 38 Studios' Bonds.

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CON

Allan Fung

Republican candidate for Governor

“I am repeating my opposition to the 38 Studios loan guaranty and to the use of taxpayer dollars to repay those moral obligation bonds.”

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CON

Ken Block

Republican candidate for Governor

“38 Studios was a bad deal and a bad investment from the very beginning and now Rhode Island taxpayers are being asked to take the hit for bondholders who should have known better...As long as there are serious legal questions still to be decided, we need to stop the repayment process."

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PRO

RIPEC

John Simmons, executive director of the Rhode Island Public Expenditure Council

“We’re not going to punish anybody but ourselves if we don’t pay."

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PRO

Greater Providence Chamber of Commerce

Laurie White, President of Chamber of Commerce

“I think it’s important that action occur quickly. Our view is that economic development in Rhode Island has to be the main event. … We need a very dramatic, aggressive effort to change the path that we’re on.”

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PRO

Gina Raimondo

Democratic candidate for Governor

“Despite my frustration with everything surrounding this transaction, I believe it is in the best long-term interest of the state and all taxpayers to repay these bonds."

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PRO

Clay Pell

Democratic candidate for Governor

“Clay does not believe Rhode Island should default on its moral obligation bonds when they come due. 38 Studios was a terrible mistake — and another example of why we need to change the culture of politics in Rhode Island"-Devin Driscol.

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PRO

Angel Taveras

Democratic candidate for Governor

“While I share the frustration of many Rhode Islanders, I believe that not paying back 38 Studios bondholders would have a detrimental impact on the state’s bond rating that would far outweigh any short-term benefit we might gain. We cannot afford to default on our obligations.”

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PRO

Lincoln Chafee

Governor of Rhode Island

“The candidates who can’t understand these two obvious truths are unfit to be Governor. The consequences of default would place Rhode Island as one of the lowest state bond ratings in the nation, and the industry would reduce Rhode Island to ‘junk bond’ status. We have been told in no uncertain terms that the reaction to not paying our debt obligations will be severe and have an adverse impact on Rhode Island. In addition, failure to honor our obligations could have harmful effects on the pending lawsuit.”

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CON

Mike Stenhouse, CEO of RI Center for Freedom and Prosperity

"It's not just about not paying off bondholders.  Bondholders are adults, they knew the risk.  It's not just a question of the credit agencies.  It's a question of what would payment crowd out, what reforms could we achieve with that money, such as sales tax reform, which would enable us to create jobs."

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CON

Mike Riley

2012 Republican candidate for the 2nd Congressional District of Rhode Island.

"If we had a real Governor, he would stand up for the Taxpayers and the State of Rhode Island and stand up against threats by rating agencies."

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PRO

Professor Ed Mazze

Professor of business at University of Rhode Island

"Even though this is a moral obligation in terms of the way the financial deal is set up I still feel the state has an obligation to the bondholders, to make good on their payments."

 
 

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