Mayor Allan Fung Challenges Governor Chafee on 38 Studios
Thursday, May 15, 2014
One day after it was reported that Chafee had criticized Fung for opposing the payments, Fung is questioning Chafee’s ability to understand the impact on Rhode Island taxpayers from the failure of the company and the resulting damage to Rhode Island’s economy.
Fung stated, “It’s bad enough that Rhode Island lost out on four hundred and fifty jobs that were promised in the 38 Studios deal, but it would be adding insult to injury for Governor Chafee to simply hand over millions of our taxpayer dollars to a group of sophisticated, institutional investors, paying back their entire investment, plus interest, without at least answering three fundamental questions."
Fung's Three Questions for Chafee
1. "Will Governor Chafee commit to transparency in this process? The Governor must pledge to withhold any and all payments until a thorough investigation of the circumstances leading up to the deal has been completed. Even Governor Chafee cannot justify spending millions of taxpayer’s dollars to repay investors if the deal is determined to have resulted from fraud or misrepresentation."
2. "Will the Chafee Administration perform appropriate due diligence before making payments on the 38 Studios bonds? Governor Chafee and his pro-payment allies have one report from a consultant, whose methodology is questionable, to support their decision to hand over millions of dollars from the beleaguered state budget. This report offers alarmist threats and sensational conclusions without thorough and relevant analysis."
3. " Will Governor Chafee commit to bold, decisive action to challenge any threat of overreaction by credit rating agencies? SJ Consulting asserts that Rhode Island’s general obligation bonds may be rated as junk bonds, equivalent to the ratings for Puerto Rico, as a result of a default on 38 Studios bonds. There is no indication whatsoever that Rhode Island would be unable or unwilling to make payments on its general obligation bonds and rating agencies would have no justification to rate our general obligation bonds so poorly. Any threat to lower Rhode Island to junk bond status would be reckless. We need a governor who would take bold and decisive action to combat such a threat. There is precedent for such strong action, including a suit by the Connecticut Attorney General in 2008, accusing all three credit rating agencies of imposing artificially low credit ratings on state and municipal bonds to the benefit of bond insurers."
"As Governor, I will not sit back and accept that the taxpayers of Rhode Island must hand over millions of dollars to the Wall Street insiders without a fight. Under my watch, Cranston has achieved an ‘A’ bond rating with all three rating agencies and I understand very well how to achieve that success. We have dramatically cut the cost of government in the City of Cranston and I will do the same in the Rhode Island Statehouse. Most importantly, I will answer tough questions, such as these three questions that Governor Chafee has failed to answer about 38 Studios,” concluded Fung.
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.
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."
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.”
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.”
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.”
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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