Scott MacKay Commentary
4:06 pm
Wed May 7, 2014

Scott MacKay Commentary: RI Lawmakers Swept 38 Studios Under The Rug

What’s worse than the 38 Studios fiasco for Rhode Island ‘s political and economic reputation? RIPR political analyst  Scott MacKay points to the aftermath.

It's been nearly four years since the General Assembly approved state support for the now-defunct video game company 38 Studios.
It's been nearly four years since the General Assembly approved state support for the now-defunct video game company 38 Studios.
Credit RIPR FILE

It’s been nearly four years since  then- Gov. Donald Carcieri, the state Economic Development Corporation and the General Assembly foisted the disaster that is 38 Studios on Rhode Island taxpayers.

A quick recap for anyone who has just returned to Rhode Island from an extended European sojourn or finishing up one of those four-year prison terms too many of our politicians serve: Months before leaving office, Carcieri cooked up a plan to lure 38 Studios from Massachusetts to Rhode Island with a $75 million taxpayer subsidy.

This untested company was run by Curt Schilling, the Boston post-season pitching star who famously beat the Yankees while battling an ankle injury as his sock became marinated in his own blood. A fabulous pitcher, Schilling turned out to be a hapless businessman. His video-game company went bankrupt, leaving the taxpayers holding an empty sock.

Now the 38 Studios mess is back on the Statehouse front steps, as lawmakers grapple with a Hobson’s choice: Whether to pay the next installment of $12.5 million which is necessary to pay off the bonds  that were guaranteed by Rhode Island taxpayers.

There is also an investigation by the House Oversight Committee, which is digging into the details of the ill-fated deal.

The sordid part of all this is that this probe has come too late. Once again, lawmakers have boxed themselves into a no-win corner. The choice is to either pay the bonds and fritter away taxpayer money that could be better spent on education or filling potholes. Or walk away, defaulting on these obligations and have our state take another sharp stiletto to its reputation.

Does anyone really want to change the license plate slogan from the `Ocean State’ to the `Deadbeat State? What do you think will happen when a default leads the national financial media to mention Rhode Island in the same headlines as Detroit? Do you really want to be a city or town official trying to borrow money to build a school addition or float tax anticipation notes?

Experts argue over the fallout from a default, but no responsible political figure can guarantee there won’t be any downside. At  the very least, the history of this fiasco will be rehashed and the nation will see that Rhode Island’s state government and business leaders were fools.

What we do know is that the state recently had a successful general obligation bond sale that refinanced $84 million in existing debt at an interest rate of 2.22 percent, down from the 4.2 percent rate on the prior bonds. Would the state get the same deal if it reneges on the bond payments?

At this point, the saddest part of all this is that much of what we know about the Schilling deal has come from media reports, initially from Mike Stanton and Tom Mooney at the ProJo and some recent sharp reporting from Channel 12 reporters Tim White and Ted Nesi.

As a taxpayer, you may ask a reasonable question: Where has your government been? Well, the short answer is that for four years, the Smith Hill politicians have been too busy covering their backsides. Until a month or so ago, there was never a serious attempt to figure out what really happened here.

It looks like the General Assembly, and maybe the attorney general, simply turned their heads, hoping it would all go away. What they should have known is that there would be a harsh day of reckoning ,  given the nearly $100 million in taxpayer liabilities.

Things weren’t always like this. Back in the 1990s, the Assembly and then-Gov. Edward DiPrete were up to their eyeballs in the anything-goes state bank regulatory climate that led directly to the credit union crisis.

After the crash, the Assembly actually did the right thing, convening an investigative commission. It had investigative staff, subpoena powers and interrogated witnesses under oath. The panel was known as the Teitz Commission because the chairman was then-House Judiciary Committee chairman Jeffrey Teitz of Newport. Its sessions were televised.

The Teitz panel even hauled in former House Speaker Matthew Smith to testify publicly. Former Speaker Gordon Fox, D-Providence, has never addressed under oath what happened in 38 Studios. Neither has Senate President Teresa Paiva Weed, D-Newport.

No such probe was launched after 38 Studios bombed. Lawmakers were too busy sweeping any complicity they had in the deal under the maroon rugs in the House and Senate lounges. Every lawmaker but one, Republican Bob Watson of East Greenwich, voted for the measure that provided the money for the deal.

Gov. Lincoln Chafee was a candidate in 2010. He voiced opposition in the most public way, even going to an EDC meeting to argue against it. But Carcieri, who was chairman of the EDC board, wouldn’t even let him speak.

Chafee had to deal with the fallout when he took office in 2011. He didn’t call for an investigatory panel to look into what happened. But he did file a lawsuit against the financial firms and law firms that lubricated the agreement that has Rhode Island on the financial hook. The suit is pending.

With the 20-20 vision of hindsight, it appears that Carcieri, most of the Assembly and a large slice of the business community and the local media were at least enablers. Some were even cheerleaders.

We all know what happens to people and institutions that fail to figure out where they went wrong in the past. They repeat their mistakes. Is that what the future holds for Rhode Island government?

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:35 and 8:35 and on All Things Considered at 5:50. You can also follow his political reporting and commentary at our `On Politics’ blog at RIPR.org