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Roach: 38 Studios Loan Debate at Heart of RI Gubernatorial Race

Wednesday, May 14, 2014


Ken Block, Angel Taveras, Todd Giroux, Allan Fung, Clay Pell, and Gina Raimondo don’t agree on many things and if Rhode Island should repay the 38 Studios loan is just another item they can’t seem to find common ground. On one side, we have Block, Fung, and Giroux saying that the state should not pay back the loan. On the other side, there’s Taveras, Pell, and Raimondo who believe that we should repay the 38 Studios loan.

It’s no secret that the 38 Studios deal was a bad deal. We all know the story of how Governor Carcieri and members of the General Assembly decided to put all of our economic eggs into Curt Shilling’s basket only to have said basked go belly-up faster than you could say Knights of Amular: Reckoning. However, the issue now is whether we – the taxpayers – continue to pay for the mistakes of our past leaders.

On principle, I say no. Block, Fung, and Giroux would each agree. Block recently was quoted as saying:

Wall Street insiders want to protect bondholders and force states like Rhode Island to stand behind ‘moral obligation bonds’ under any circumstances. The ongoing legal challenges and scandals continuing to swirl around the 38 Studios deal necessitate a halt in paying off those bonds.

Again, I agree with this sentiment. Why should we – the taxpayers – have to pay for the our government’s mistakes? For most of us, when we make a mistake the government isn’t there to bail us out so why should we be there for the government?

Well, Governor Chafee has argued that if we default on the 38 Studios repayment Rhode Island’s credit rating will…go in the tank. The S&P Ratings Services looks like they would agree as they recently stated, “if Rhode Island were to fail to support any of its debt, we would likely take negative rating action.” If the state’s credit rating goes down, it increases the cost our state incurs to borrow and in some cases if our credit rating dips below a certain criteria, it could trigger accelerated payments.

So which position should we support?

This is a difficult decision, quite honestly. Do we take the risk of our credit rating tanking in order to make a point? Do we repay the bonds in the hopes that the lawsuit provides the state with some ability to recoup what it has lost?

The maverick in me says we should take the position of not repaying the bonds. The bonds were a result of a few people making a very bad decision and we – the taxpayers – are left picking up the pieces.

That’s what the maverick in me would do. The guy really concerned about our credit rating, would reluctantly make the repayments again and again until the lawsuit was settled or the bonds repayments we completed.


Related Slideshow: 10 Questions Block Has to Answer When Running for Gov of RI

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10. Can Block convince voters he is more than a third party player?


To win in the GOP primary, Block is going to need to convince GOP primary voters that his ideals align with the fundamental beliefs of the Republican Party. 


He did get a political gift.  As GoLocalProv reported - Blocks opponent in the GOP primary, Cranston Mayor Allan Fung has been a consistent donor for a decade to many of the top Democrats in the Party.


Both Block and Fung will be challenged to explain their GOP credentials.

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9. Is Block too much of a techno-candidate?


Block, the founder of a software company, love to talk about technology solutions to public policy problems. He is going to have to define his solutions to problems in a tangible way.  Often, voters connect to simple themes, "Hope and Change" or from "Head Start to Harvard." 


Block is going to need to be able to show he can connect to all Rhode Islanders - we are a retail political state.

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8. Can Block raise money?


Block has demonstrated he is serious about running - he has already invested $500,000 of his own money to win the GOP primary, but he will need an estimated $3 million to win the primary and General Election next November.


To date, his fundraising base has been small and while Fung is no Gina Raimondo in fundraising, he does have a modest Republican fundraising base.

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7. Will Block defend the behavior of National Republicans?


If 15 months from now Ted Cruz works tirelessly to close the federal government over the implementation of Obamacare, will GOP Governor Ken Block speak out on the issue? 


Will Block praise or criticize Cruz? In the primary, conservative voters may want him to praise Cruz and in the General election, the majority of voters may want him to condemn Cruz.

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6. Can Block attract RI GOP leaders?


A few weeks ago Fung announced an advisory group of prominent Republicans.  The announcement gave Fung's efforts some momentum. Block would pick up a lot of credibility if he were to peel some Fung supporters over to his team.


In addition, a number of leading Republicans have yet to make an announcement - if they break to Block it may create momentum.

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5. Can Block connect with voters in the General Election?


Assuming Block beat Fung in a GOP primary and went on to face a progressive Democrat like Providence Mayor Angel Taveras or rising star Clay Pell, can Block work the Greek Festival in Cranston or the Scituate Art Festival as well as these Democrats?


Will undecided voters connect to Block?

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4. Will Block's lack of previous elected office help or hinder?


It can be argued that never having been elected before could be perceived as a negative.


Sure, Governor Don Carcieri was never previously elected to office and Governor Bruce Sundlun had only been elected to the state's Constitutional Congress, but voters may want to be sure that Block will know a federal emergency declaration from a new software version - or will each new storm be deemed Sandy 2.0 and so on.

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3. Is Block the smartest guy in the room?


Make no mistake about it, Block is smart. Business smart, policy smart, but could he be too smart and then not be able to connect to voters.


Bill Clinton was a Rhodes Scholar (so was Gina Raimondo), but one thing about Bill Clinton was that he could play the role of a good ol' boy as good as anyone. He could make any voter feel right at home.


Block will need to channel his intelligence into a language and approach that connects to the CEO he is asking to support his effort as equally as asking a unemployed mom in Pawtucket.

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2. How will he handle the plethora of special interests?


This time Block will have to answer the questionnaire from the FOP, the Right-to-Life groups, the Environment Council, MADD, the Teamsters, The Northern RI Chamber of Commerce, NEA-RI, arts advocacy groups, the NAACP, and you get the picture.


Consistency will matter. One group's endorsement will spark another groups condemnation. Mr. Block, welcome to the 2014 governor's race.

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1. Can he handle the hot lights?


The one thing about being the third or fourth candidate in a race is people remember the smart things you said, but don't pay much attention to the dumb things you said. Heck, you really didn't have a real chance to win so the assessment is not very stringent.


This time will be different. He needs to run not one but two nearly flawless races to be the next Governor of Rhode Island. His effort in 2010 will help him, but this time he has a real chance to win and the stakes are much higher


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This seems so obvious to me. DO NOT PAY THIS DEBT! This 'deal' was concocted, er, I mean, worded the way it was so we, the voters, wouldn't be involved in the decision making. It's not a binding contract. The investors knew that and got a higher interest rate because of that FACT.
Raimondo and Taveras want it paid as if it was an obligated bond to protect their Democrat friends from an outside investigation that would most probably take place if not paid. They both will do anything for the dem party. How else could you explain the two of them standing on stage, shoulder to shoulder with a KNOWN liar and crook David Cicillinne, promoting him as the best RI has to offer to represent the people of the first district. They both will do anything to protect the dem party. They KNOW some dems are in trouble if an outside investigation takes place.
If this is paid as though it was a binding contract, it WILL HAPPEN AGAIN and again and again.
Besides, when did the state of RI get so 'moral' as to pay debts we aren't obligated to pay? Must have been after the pension reform, huh Gina?

Comment #1 by RI Taxpayer on 2014 05 14

I also say do not pay off the bondholders. They're big boys and understood the investment risk. Plus the whole deal was insured, so let the insurance company do the paying -- not the taxpayers who are taken as chumps by the Political Establishment.

Also, the eagerness of some for the state to pay the debts smells very fishy. I think they're protecting political insiders who were fraudulently making money off the 38 Studios deal (can you say Tazza Caffe?).

Let Standard & Poor's huff and puff all they want over something that will have a temporary affect at most. Let the political crooks swing in the wind. The taxpayers have had enough.

Michael Riley has a good financial/legal analysis here: http://www.golocalprov.com/politics/michael-riley-dont-pay/

Comment #2 by Art West on 2014 05 14

This may well break down to a "we'll PAY if you hire enough of the right lobbyists to exhort us" deal. Looks like they have already hit Gump's office "bigtime".

Comment #3 by G Godot on 2014 05 14

Kudos to Alan Fung and Ken Block for standing up for the taxpayers. And kudos to both for not being influenced by an outside study that tells the Governor what he wants to hear.

The bond holders knew the risks involved when they signed onto the deal-that's what the financial industry is all about. Risk and reward. If the Studio 38 deal had succeeded the bondholders would have benefited. But it didn't, so they lose. Rhode Islanders are already over burdened with taxes and State debt. We don't need more of both in order to bail out the Studio 38 folks.

Comment #4 by Bob Beagle on 2014 05 14


Comment #5 by Jackson Teller on 2014 05 14

Don't pay for the bond. I want an investigation, because I want all of the facts of this terrible decision to see the light of day, and if laws were broken, then I want to see the people charged and prosecuted.

Comment #6 by John Onamas on 2014 05 14

As Carcieri said ""I commend the RIEDC Board for its EXTENSIVE DUE DILIGENCE and for taking this significant step to bring jobs to Rhode Island," Don Carcieri THE MAN WITH THE VETO PEN said the night the agency approved the loan to Carcieri's fellow "small government" conservative Republican Curt Schilling.


Rhode Island's director of revenue said she "was not in favor" of the 38 Studios deal and and expressed those concerns DIRECTLY to then-Gov. Don Carcieri.
Gov. Carcieri still won't face taxpayers despite the stunning implosion of the $75 million loan guarantee he got them to give to Curt Schilling's video game company,

Comment #7 by Sammy Arizona on 2014 05 14

This issue clearly separates the Republicans from the Democrats! Rhode Island is being destroyed by the cronyism and corruption that is the Democratic Party!

Comment #8 by Reagan Republican on 2014 05 14

Um, RR, Don Carcieri was a Republican governor. It's too bad the buck--our bucks--didn't stop there. There's lots of blame to go around.

Comment #9 by John Onamas on 2014 05 15

Am I the only one that sees the irony of the pending downgrade for not paying a MO bond, but an upgrade for not paying a contractual obligation to our state employees and retirees? I support the pension reform as a necessary evil to save (or postpone) the cities and towns from bankruptcy. But I have little respect for the rating agencies after the great recession, and even less for even offering guidance on our GO bond rating now.

Comment #10 by Redd Ratt on 2014 05 16

When this story first broke, way back when, I mistakenly thought that there was a binding contract to pay the bonds. Since there isn't and the bond holders knew this going in, sorry, go talk to the people that made the promise to pay you and leave the RI taxpayers out of it.

Redd Ratt - I agree with you the employees had a contract and we're backing out of that. I have a feeling this isn't going to go well either when the dust settles in the courts.

Comment #11 by Wuggly Ump on 2014 05 19

Ahhhhhh Sammy boy, the folks who frequent this website know who was running the legislature when the bonds were approved. The more you mumble the governor's name the more you demonstrate just how helpless our elected democrats were when they went whole hog for it. You are wasiting your time. Back under the rock.

Comment #12 by G Godot on 2014 05 19

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