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RI’s Consultant on 38 Studios Has Big Democratic Ties

Monday, May 19, 2014


A consultant hired by the state of Rhode Island to determine whether or not to pay back the debt on the failed 38 Studios bonds has given thousands of dollars to top statewide Democratic candidates in Massachusetts, a GoLocal investigation has revealed.

SJ Advisors' Linda Port, who testified earlier in May that defaulting the bonds on the bankrupt 38 Studios would reduce Rhode Island's bond rating to junk status, has given over $2,500 in contributions to prominent Democratic candidates in the Commonwealth including Governor Deval Patrick and Attorney General Martha Coakley while serving as an attorney with Mintz Levin and Greenberg Traurig, according to contribution records. 

The debate as to whether to pay back the bonds -- or not -- has top Democrats Governor Lincoln Chafee and gubernatorial candidates Clay Pell, Gina Raimondo, Angel Taveras lined up on the side of paying them, and GOP candidates for Governor Allan Fung and Ken Block among those strongly opposed.

"The Democrats are in power, and they were in power for the 38 Studios deal," said veteran political pollster Victor Profughi. "And the opposition party will jump on any issue they can. It's politics -- and I'm not using that in the negative sense, it's just what it is."

State's Choice of Advisors

SJ Advisors was chosen out of a field of three proposals, after a prior request for proposal yielded no bidders.

"The Department analyzed all three substantive proposals received. In addition to the proposal review, Department of Administration staff conducted several phone interviews with all those who submitted substantive proposals," said Alison Rogers with the Department of Administration. "SJ Advisors was identified as having the best qualifications and experience to conduct the work among those who submitted substantive proposals. In addition, SJ Advisors had recently served as a financial advisor for Bryant University."

SJ Advisors' Port noted that that since joining SJ Advisors this year, besides the RI 38 studios analysis she has had a "college client," and had not met Governor Chafee or Department of Administration Director Richard Licht prior to working on 38 Studios.

Profughi thought that the role of politics, and the ultimate impact of the dissent between parties on paying back -- or not paying back the bonds -- would be negligible.

To pay or not to pay -- sides are lining up on each side of the debate, and on both sides of the aisle.

"Clearly, the Republicans are trying to make this a political issue -- and again, I don't us that term negatively. It's an issue that ought to be of concern, but does that translate to actually being of concern -- remember that voters will have to remember long enough to November," said Profughi. "I don't know a lot about who the bidders were to make a determination on SJ Advisors and their advice. If they were familiar with Rhode Island, that can cut both ways."

Port noted that the two advisors were of different political parties.  "The Principal and Senior Vice President of SJ Advisors, who prepared this report, are of different political parties and political considerations do not influence their professional activities," said Port. 

Port's bio includes having previously been partner at Mintz Levin, where Licht's former Chief of Staff as Lieutenant Governor, David Lieter, is the head of ML Strategies, Mintz Levin's consulting subsidiary.

Looking Forward

The scheduled bond payment is in Governor Chafee's FY15 budget. Where will the General Assembly come down on the issue?

While Governor Chafee and a number of elected officials as well as candidates have weighed in on whether or not to pay back the bonds, the Speaker of the House has yet to take a position.

"Speaker Mattiello is in the process of gathering information that will help him, as well as all of the House members, to formulate a fact-based decision on the bond repayment," said Larry Berman, spokesperson for Speaker Mattiello. "He is reviewing the report submitted by SJ Advisors and the testimony that has been submitted to both the House Finance and Oversight committees."

Berman continued, "Since the bond repayment is included in Governor Chafee's budget proposal, the vote would be taken as part of the budget that will be considered by the House in the coming weeks. In the meantime, the House Finance and Oversight committees are still conducting their work on this issue. The major factor [Mattiello] is considering is the potential impact on future state and local bond proposals."

Former SEC lawyer and Forbes contributor Edward Siedle, who conducted an investigation last fall into General Treasurer Gina Raimondo's management of the state's pension fund, had expressed interest in conducting the 38 studios analysis, but the Department of Administration's Rogers said Siedle's proposal "failed to address the Workplan and Approach/Methodology sections.

Siedle said he questioned the motivation for paying back the bonds.

"Pay fraudulent debts to Wall Street and let Wall Street to manage the pension in secrecy. Who's running RI? The people or Wall Street?" asked Siedle. 


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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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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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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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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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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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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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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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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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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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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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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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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