(Updated, 3:19 p.m.)
PROVIDENCE – Gov. Lincoln D. Chafee on Tuesday issued a statement defending the need for Rhode Island to repay the 38 Studios LLC moral obligation bonds and criticizing gubernatorial candidates Cranston Mayor Allan W. Fung and Ken Block, who have voiced opposition to repayment.
Chafee asserted that “candidates who can’t understand” that paying the 38 Studios debt is essential for the state to continue its economic recovery and recoup taxpayers’ money through legal channels “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 the industry would reduce Rhode Island to ‘junk bond’ status,” said Chafee. “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.”
Chafee’s mention of the potential threat to Rhode Island’s bond rating was a reference to a state-commissioned report by SJ Advisors released last week that concluded that failure to repay the bonds would probably result in a downgrade of Rhode Island’s bond rating to “junk bond” status, and could cost the state as much as $361.8 million more than the cost of repaying the 38 Studios debt.
Responding to Chafee’s criticism, Block said in a statement that the governor’s censure of candidates who oppose repayment reflected a refusal “to take ownership of his role” in the collapse of 38 Studios.
“These bonds are moral obligation bonds and are not owned by the taxpayers of Rhode Island,” said Block. “I find it unconscionable that the governor would put insider Wall Street investors ahead of the taxpayers who elected him. These investors were adequately warned and knew the risk they were taking when they purchased the bonds. The fact that Governor Chafee doesn’t understand this underlines his failed leadership.”
On Monday, Standard & Poor’s Rating Services placed Rhode Island on a negative credit watch due to the ongoing debate among state lawmakers about whether to repay the close to $90 million owed by Rhode Island as a result of the collapse of Curt Schilling’s failed video-game company.