Chafee blasts Block, Fung on 38 Studios debt. They fire back

May 13, 2014

Gov. Lincoln Chafee has hammered Cranston Mayor Allan Fung and Ken Block, the two candidates vying for the Republican gubernatorial nomination, for their advocacy of defaulting on the 38 Studios debt.

Chafee said in a news release that paying the debt is necessary for the state to continue its recovery from the recession and recoup taxpayer money via the courts.

``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 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 our pending lawsuit,’’ said Chafee.

Chafee also accused Block and Fung of essentially playing to the cheap seats in a campaign season. ``The push by Allan Fung and Ken Block to default is disheartening. We hear from them populist rhetoric that lacks any empirical research or credible support. Common sense dictates that you pay your debts however distasteful,’’ said Chafee.

Fung and Block wasted little time in taking shots back at Chafee, who is not running for reelection.

``The lack of understanding begins with Governor Chafee,'' said Fung. ``Whose commitment to the institutional bondholders and other financial elites far outweighs his concern for the average Rhode Island taxpayer.''

Fung also said a report commissioned by Chafee that stated the state would be better off paying the debt that defaulting, offered `` a number of alarmist conclusions.''

Block, too, chided Chafee. ``I find it unconscionable that the governor would put insider Wall Street investors ahead of the taxpayers who elected him,'' said Block in a statement.`` These investors were adequately warned and knew the risk they were taking when they purchased the bonds.''

Chafee reminded Fung and Block that he has been the ``most vocal and strongest opponent of the 38 Studios deal.’’  (In fairness, Block was also a vocal opponent of the deal, which was pushed by then-Gov. Donald Carcieri.

``In the summer of 2010 I was denied access to a Rhode Island Economic Development Corporation meeting where I hoped to speak and state the case on behalf of Rhode Islanders on why this was a bad investment,’’ said Chafee.

Carcieri, who at the time was chairman of the EDC, scuttled Chafee’s attempt to make his case before the EDC brass.

Earlier today the Greater Providence Chamber of Commerce issued a statement supporting Chafee’s stance on paying back the taxpayer-guaranteed $75 million bonds that went to 38 Studios, the video game company founded by retired Boston Red Sox pitcher Curt Schilling. 38 Studios went bankrupt, leaving Rhode Island taxpayers on the hook.

All three Democratic governor aspirants, Clay Pell, Gina Raimondo and Angel Taveras, support paying the debt and pursuing the lawsuit initiated by Chafee against the law firms and financial advisors who advised the state on the 38 Studios matter.