Is Debate Over Paying Back Bonds for 38 Studios Holding Up the Budget?

Jun 13, 2013

House Minority Leader Brian Newberry believes debate over whether Rhode Island should pay back moral obligation bonds for 38 Studios explains why the House version of state budget has yet to emerge.

While lower than expected state revenues are also a factor, "I think the big issue right now is whether or not to pay the 38 Studios' bonds," Newberry said during a taping of RIPR's Political Roundtable. "I think that's the big hang-up at the moment. I don't know when we're going to see a budget, although we're supposed to do it within the next two weeks."

The state is looking at plugging in a $2.5 million bond payment for the budget year starting July 1 in connection with the failure last year of 38 Studios. Newberry puts the total cost of paying back the bonds at $89 million. (Reuters' Cate Long has more on the cost.)

The MIA status of the budget in mid-June, in a session when lawmakers once harbored hopes of an early exit, has sparked a string of tweets among some Statehouse observers.

Larry Berman, spokesman for House Speaker Gordon Fox, rejects the idea that debate over the bonds is delaying the budget. In a statement, he says:

“First of all, there is no delay in the budget. The General Assembly has until June 30 to enact a budget and if you look historically in non-election years, the budget is often approved in late June. The major reason that it is taking time to finalize this year’s budget stems from the results of the Revenue Estimating Conference last month.  The estimators from the Governor’s office, House and Senate collectively determined that there is a revenue shortfall of $51.1 million for next year.  That is a very significant development.”

Newberry, like state Republican chairman Mark Smiley and his GOP colleagues in the state Senate, opposes paying back the bonds for 38 Studios.

Governor Lincoln Chafee's administration and Speaker Fox have pushed lawmakers to pay back the bonds, arguing that a failure to do so will hurt Rhode Island and its credit.

Newberry disagrees. If taxpayers are going to pay back a total $89 million to "essentially Wall Street outfits under a moral obligation that the state doesn't have a legal obligation to pay," he says, "I need to be given a very good reason.

"And the only reason that I could be given would be evidence that would show -- not speculation -- but actual evidence that would show that the fiscal hit to the state, through its bond rating and credit, would be worse not paying than paying it. To date, I have not seen that evidence, so if I were to vote right now, I would not vote to repay them."