38 Studios Scandal Could Spell Trouble for Incumbents

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Monday, September 17, 2012

Dan McGowan, GoLocalProv News Editor

Now that former Governor Don Carcieri has broken his silence about Curt Schilling’s failed video game company, incumbent lawmakers who voted in favor of the legislation that made it possible to bring 38 Studios to the Ocean State will likely have to explain themselves to voters over the next few weeks, several candidates, Party leaders and taxpayer advocates say.

38 Studios filed for bankruptcy in June less than two years after the Rhode Island Economic Development Corporation (EDC) voted to offer the company a $75 million loan guarantee to move its headquarters to the Ocean State from Massachusetts. Court documents show the company was more than $150 million in the red when it filed for bankruptcy, with the state owed $115.9 million.

But critics say the deal never would have happened if the General Assembly didn’t jam through last-minute legislation that helped expand the EDC’s Job Creation Guaranty Program from $50 million to $125 million, the exact amount that would eventually be awarded to Schilling’s company.

“The collapse of 38 Studios and the roughly $100 million tab it left on the doorstep of the RI taxpayer should make it a central voter concern in these weeks leading up to the election,” said Donna Perry, executive director of the Rhode Island Statewide Coalition (RISC). “Candidates need to know voters are angry that legislators green lighted that loan without demanding a fuller accounting of what that legislation really meant.”

Voters Make Statement with Brien

Perry said there have been several other instances where the EDC has doled out millions of dollars without much success, but the high-profile nature of 38 Studios has caught voters’ attention.

“The taxpayers need to tell candidates that if they won’t take a hard line and force greater scrutiny, smaller scale loans, and less political interference in the process, then they aren’t working in the taxpayers’ best interests and that will be remembered in November,” Perry said.

In one case, voters have already made a statement.

Last week, Woonsocket State Rep. Jon Brien, who co-sponsored the legislation with former finance committee chairman Steven Costantino and current finance committee chairman Helio Melo, was defeated in a Democratic primary by challenger Stephen Casey.

Casey supporters say the victory came in part thanks to a SEIU mailer sent to likely primary voters that tied Brien to 38 Studios the week before the election.

“Rep. Brien was one of three sponsors whose names appeared on the law that enabled the EDC to loan $75 million to Curt Schilling’s risky video game company – but left Rhode Islanders on the hook when it failed,” said Chas Walker, an elected organizer with the SEIU. “Brien later claimed that the wool had been pulled over his eyes, that he was sold a bill of goods, and that he didn’t know that all of the funds would be poured into one company – but it appears these excuses simply weren’t good enough for voters.”

GOP Leader: Republicans were “Powerless”

According to State GOP Chairman Mark Zaccaria, a more balanced legislature might have led to more debate and deliberation on the issue, but instead the legislation was pushed through too late and with zero mention of 38 Studios. While former House Minority Leader Robert Watson cast the lone vote against the bill, Zaccaria said Republicans were essentially “powerless to do anything to stop it” from passing.

“The real problem, however, is that the Speaker can deliver legislation to the floor of the chamber – fully formed and completely un-vetted – and have it passed within minutes,” Zaccaria said. “That deprives the citizens of any representation in the matter as their elected officials have no more idea about such bills than we constituents do, at home in our beds when it all goes down. Until that changes the specter of another 38 Studios, or worse, looms over Little Rhody.”

Mark Binder, an independent candidate who is running against House Speaker Gordon Fox in District 4, agreed with Zaccaria. Binder says the 38 Studios failure is what motivated him to run in the first place and criticized Fox for continuing to promote the legislation on his campaign website.

“38 Studios is a prime and expensive example of what is wrong with Rhode Island's state government,” Binder said.

Fox Spokesman: Job Development a ‘Major Focus’

Binder believes Fox still hasn’t answered why legislation that had been “languishing in committee” for several years finally passed in 2010. He suggested that the Speaker’s friendship with Michael Corso, a tax credit broker and lawyer who worked for 38 Studios, is what helped the deal move forward.

“When 38 Studios imploded, Gordon Fox did what he always does. He ducked the questions and denied responsibility,” he said.

But the political ramifications of the 38 Studios deal aren’t what the Speaker is thinking about, according to Fox’s spokesman Larry Berman.

“Speaker Fox is less concerned that 38 Studios is a campaign issue, and much more concerned about the jobs that were lost and the risk to the taxpayers which resulted from the closure of the company,” Berman said. “We were facing extremely high unemployment numbers in 2010, so the General Assembly created a program to address the difficult times. We learned many lessons from the failure of the company, but the premise of creating job opportunities is still valid. Job development will continue to be a major focus of the General Assembly in the next session.”

For Zaccaria, it all comes down to a need for more oversight.

“I’d say that the General Assembly owes it to the citizens of Rhode Island to establish a more transparent process than the very murky one used to fund 38 Studios,” he said.

 

Dan McGowan can be reached at dmcgowan@golocalprov.com. Follow him on Twitter: @danmcgowan.

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