Nearly a year of reassurances from Rhode Island’s top political leaders that the state will pay off its 38 Studios LLC debt hasn’t quieted advocates of a tactical default.
A group of lawmakers is pushing bills to cut all 38 Studios bond payments from the upcoming fiscal 2014 budget, while supporters of paying off the $75 million loan guarantee to Curt Schilling’s defunct video game company have become nearly silent.
Despite pledging support for paying the bonds to Moody’s Investors Service in a report from the ratings agency last May, House Speaker Gordon D. Fox is now publicly uncommitted on the issue.
“No position has been finalized,” said Fox spokesman Larry Berman about the 38 Studios bonds. “The Speaker will continue to study the issue.”
General Treasurer Gina M. Raimondo through a spokeswoman said the state’s debt consultants had advised against a default so her office has not analyzed the option.
And although Gov. Lincoln D. Chafee stands by his longstanding position to pay the debt for moral reasons, he did not send anyone from the R.I. Economic Development Corporation, which issued the 38 Studios bonds, to a recent legislative hearing on a series of default bills.
With little coming from the strongest supporters of paying the bonds, advocates of default have grown louder.
“It couldn’t be clearer that the bond holders were accepting the risk,” said Rep. Spencer E. Dickinson, D-South Kingstown. “The third issuance of bonds was at an interest rate of 7.75 percent. That tells you anyone buying them was walking into a casino.”
Dickinson is a co-sponsor of a bill filed by Rep. Karen MacBeth, D-Cumberland, which would bar the state from paying back the bondholders.
On whether the bill has a chance, Dickinson said he believed it has the support of a majority of House members, but that they might back down if asked to do so by Fox, who has been closely aligned with Raimondo.
The 38 Studios loan was financed through state “moral obligation” bonds issued by the quasi-public R.I. Economic Development Corporation under $125 million in borrowing authority granted by the legislature.
Unlike general-obligation bonds, which state government is contractually obligated to pay, moral-obligation bonds are backed by a more nebulous pledge that the legislature will make appropriations to back them.