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Arthur Schaper: Game Over on 38 Studios

Friday, May 16, 2014


Crime and corruption in Rhode Island are nothing new, but the 38 Studios debt is no game either, believes Arthur Schaper.

38 Studios was never a good idea. Any time that a government offers a loan to a private firm, expect nothing but trouble. The government does not have wealth of its own. Everything from the state house to city hall comes out of the coffers and wallets of small businesses and private citizens.

So, any time that the state wants to push a loan for anything, one party lends another party’s money to a third party. Not much for the third party, since they get stuck with the bill.

I was saddened that Republicans as well as Democrats supported granting a loan to any company. In desperate times, desperate measures are the last thing that lawmakers and leaders should be looking for.

At any rate, the game began, has come to an end, and the Rhode Island taxpayers are stuck with “Game Over”.

Or are they?

Local media invited the six Rhode Island gubernatorial candidates to state their plans for 38 Studios (“To Pay or Not to Pay”?). Putting aside the press releases, I contacted local leaders already in power. US Senators Jack Reed and Sheldon Whitehouse’s offices had no statement on 38 Studios. Whitehouse worries too much about climate change, and Reed must be working on that next trip to Afghanistan. Potential US Senate challenger Raymond McKay said “no” to loan payback.

Congressman Jim Langevin’s office had no release when I called them, but staff agreed to return my calls. When I contacted Rep. David Cicilline’s office about 38 Studios, his staff responded that he had not issued a statement on the deal.

Besides “It’s not my fault”, Cicilline had nothing to say about Providence’s financial straits. Why would he have anything to say about 38 Studios?

Republican candidates for governor, Allan Fung and Ken Block, both oppose paying the bonds.

Providence mayor and gubernatorial candidate Angel Taveras’s campaign did not return any calls. One staffer for Treasurer Gina Raimondo’s gubernatorial campaign office referred to a recently published statement, in which she affirmed her opposition to the loan from the beginning, yet at the same time argued that the state has to pay back the bonds or face worse consequences.

Clay Pell’s office issued this statement:

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.

Pell the Democrat (the same party ruining the state) wants to change the politics. Really?

Clay is running for Governor to help Rhode Island seize the future, and the first step is restoring faith in state government. That's why he's pledged not to accept contributions from PACs and state lobbyists, why he released an unprecedented five years of his tax returns, and why he's rolling out a policy platform focused on long-term planning for a prosperous future.

Been there, heard that. Not more faith in government, but less government is the way to go.

In the meantime, Clay believes the state must strongly pursue recovery of its original investment to the fullest extent of the law.

Fair enough, but at what cost?

Cormick Lynch returned no comments by press time. Stan Tran, also running to replace Congressman David Cicilline, shared his thoughts on the Video Game Company gone bad:

The politicians clearly screwed up on in this case. Not just negligence but perhaps criminally - people are speculating that this is one of the focus of the FBI probe.

There are consequences when we screw up.

Excuse me? Who’s “we”? Not the taxpayers, certainly.

Either we take money away from needed services to pay back the loan, or default and have our credit rating tank, which will hurt us in the long run with being able to borrow money to build infrastructure. The financial cost of having a non-investment grade rating, aka "junk" rating, is much more than paying back the loans. Therefore I support repaying the loans, and voting these legislators out of office. It's the smart thing to do.

Rep. Mike Chippendale (R-Foster) differed extensively with this analysis:

There is no way we should be paying these bonds. We are not legally obligated to, we certainly are not "morally" obligated to, and we are being stonewalled by the Chafee administration regarding payment and I do not yet know why.

The moral obligation, by the way, rests on the fact that Rhode Island voters never supported them. Chippendale has investigated the waste and fraud associated with the state health care exchange. After indicting officials who only announced what Governor Chafee wanted to hear, Chippendale added:

I am currently in the middle of putting together a complete analysis of the bid... this has now reached Watergate proportions relative to the severity of the crime compared to the massive coverup surrounding it....

Crime and corruption in Rhode Island are nothing new, but the 38 Studios debt is no damn game, either. Democrats want to pay (with other people’s money). Republicans say “No way”. That division should signal who to vote for in 2014 (hint: the people who think that you, Rhode Islanders, should not pay for the state's bad loans).


Arthur Christopher Schaper is a teacher-turned-writer on topics both timeless and timely; political, cultural, and eternal. A life-long Southern California resident, Arthur currently lives in Torrance. Follow him on Twitter @ArthurCSchaper, reach him at [email protected], and read more at Schaper's Corner and As He Is, So Are We Ministries.


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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