The House Finance
Committee heard several bills yesterday concerning the operation of the RI
Economic Development Corporation (EDC) in the wake of last years 38 Studios
fiasco, including two bills that would prohibit the state or the EDC
from making payments to the bondholders of the failed video game company.
The bills, H5639 and H5888,
would stop the state from making any payment to bondholders until all of the
bondholders can be identified in the case of the former, and in the latter,
would prohibit the state from making payments to the bondholders regardless of
whether they can be identified. The bills have been introduced by Reps.
Charlene Lima and Karen MacBeth, respectively.
Rep. Lima, growing more upset as she presented her bill, said, “The biggest problem in government is lack of transparency, and this deal was no different. The bondholders did not hold up their end of the bargain.”
Lima contends that, by
not filing the agreed upon documentation with the state, the bondholders
violated their contracts, and therefore the state has no obligation to repay
the debt.
MacBeth testified that
the legal definition of a moral bond removes the state’s obligation. “The two
criteria for repayment of a moral obligation bond are being the primary
bondholder, and ability to pay,” she said, “38 studios was the primary
bondholder, and the state does not have the ability to pay.” She added, “These
bonds were insured. The insurer knew the risks. Let the insurer pay.”
A representative of
the Occupy Providence movement, Randall Rose, also testified in support of
MacBeth’s bill. He said that the only reason to pay these bonds is the fear of
retaliation by Wall Street. “This was an inefficient way to borrow money, and
amounts to an end-run on the Rhode Island constitution.” By Rhode Island law,
the public cannot be held obligated to a debt that was not put forth by ballot
measure.
A currently unemployed
finance director, Brian Kelly, testified that if the bonds were not paid, and
if there was a retaliation by Wall Street in the form of increased interest
rates to state bonds, “We would have to float $11 billion in bonds at a 1
percent increase in interest to equal the debt from 38 Studios.”
He also indicated that
the bonds were insured, and analogized the situation to sports teams that
insure players with guaranteed performance contracts who then get injured. “In
either case, a claim is filed, and the losses are covered. This is what
insurance is for. The insurers knew the risk.”
Rep. Lima called the
bondholders ”cowards” for not coming forward, and House Minority Leader
Brian Newberry said, “The fact that no one from EDC is here to testify is
disrespectful to this committee, disrespectful of the House. The impacts of
these bills are at EDC’s feet, and the fact that no one is here to testify is
an outrage.”
EDC execs did offer a
letter concerning the bills to legislators that all indicated that the letter
was received just minutes before the hearing. Rep. MacBeth called the letter
incomplete, at best. “It has no fiscal note, and no evidence of future negative
impacts to bond ratings. We’re just supposed to take their word for it?”
Other EDC related
bills heard at the meeting were H5268 which would cap any one loan by EDC at
$10 million, H5463 which
would prohibit EDC from making any loan guarantees,H5643 prohibiting
the state from paying interest on 38 Studios loans, H5745 imposing
a limit of $5 million in EDC loans to any one entity, and H5746 which
would impose an aggregate limit of $1 billion on any EDC loans out at one time.
Committee Chair Helio
Melo, when asked if he found any of the testimony particularly compelling, and
if he thought that an oversight committee would have been a more effective way
to ferret out those questions, said “Nothing really jumped out at me, but I
think that introducing legislation is a good way to uncover the questions that
need asking.”
“In today’s testimony
we heard questions regarding the state’s obligation to the bondholders,
the possible effects of non-payment, and the role of the bond insurers.
I’m sure there will be many more in the coming weeks.”
Dave Fisher
is a writer, chef, musician, political junkie, animal lover, ignorance hater,
and a 2013 mayoral candidate in the city of Woonsocket. He's a lifelong
Woonsocket resident, who lovingly refers to himself as a Woonsocket Rocket and
proud Villa Novan. http://www.facebook.com/DaveFisherForMayor
