When are Republicans the party of Wall Street outrage and Democrats the voice of deference for high finance?
When 38 Studios is involved, of course.
Rhode Island’s five major candidates for governor are split along party lines over whether the state should pay back the roughly $87 million still owed the holders of 38 Studios bonds.
Although quick to rue Rhode Island’s involvement in Curt Schilling’s ill-fated video game company, the three major Democratic contenders have all promised to repay the state’s 38 Studios debt in order to protect its reputation and avoid potentially larger, future costs.
The two Republicans battling for the nomination, on the other hand, say a compelling case for repaying the bonds has not been made, and they would default rather than commit any additional tax dollars to a state investment they consider fraudulent.
Ken Block, the most aggressive 38 Studios hawk of the group, has suggested default could be a positive, even if it ultimately costs more than $87 million, because it will help prevent the future use of moral-obligation bonds, the instrument used to finance 38 Studios.
“38 Studios was a bad deal and a bad investment from the very beginning, and now Rhode Island taxpayers are being asked to take the hit for bondholders who should have known better. As long as there are serious legal questions still to be decided, we need to stop the repayment process,” Block said in a May 12 statement.
“Wall Street insiders use moral-obligation bonds to line their pockets at the expense of taxpayers across the country. They charge higher interest on these bonds than on taxpayer-approved bonds, and then blackmail governments into treating them exactly the same,” he added two days later.
Cranston Mayor Allan Fung, Block’s opponent for the Republican nomination, doesn’t go as far as suggesting Rhode Island should default on principle alone, even if it costs taxpayers more to do so.
But he argues that based on the limited information about the potential choices gathered to date, default appears to be a better option than allocating $12.4 million from the state budget for each of the next seven years, as is now planned.
“Mayor Fung’s position has been that we need more information than just speculation of what ratings agencies might do in response to nonpayment of bonds,” said Fung spokesman Robert Coupe. “Specifically, we’d be looking for someone to speak with the investors who buy general-obligation bonds issued by Rhode Island and try to get a sense of whether they would continue to make those investments based on the state’s obvious continued willingness to pay its obligations on those debts, as opposed to moral-obligation bonds, which are not secured by the full faith and credit of the state.”
SJ Advisors LLC,
Providence Mayor Angel Taveras,
Standard & Poor’s Financial Services,