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RI Bill Would Default On 38 Studios Debt Payments

David Klepper, Associated Press
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(Photo from 38 Studios Facebook page)

(Photo from 38 Studios Facebook page)

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PROVIDENCE, R.I. (AP) — A small group of state lawmakers suggested Tuesday that Rhode Island should default on the money it owes for its failed investment in former Red Sox pitcher Curt Schilling’s bankrupt video game company.

The legislation introduced in the state House of Representatives would prohibit the state or its Economic Development Corp. from making payments connected to the EDC’s $75 million loan guarantee given to 38 Studios. The bill’s sponsor, Rep. Karen MacBeth, D-Cumberland, said the state has insurance on the bonds that will pay bond holders if the state defaults.

“I think there’s a lot of constituents upset about this throughout the state,” she said of the 38 Studios debacle. “We’re struggling as a state. Any negative ramifications (from a default) couldn’t be worse than paying.”

The bill faces significant challenges in the General Assembly and has a high-profile opponent in Gov. Lincoln Chafee, who opposed the loan guarantee but has said the state must honor its debts.

The EDC board in 2010 approved the loan guarantee for 38 Studios with the hope of bringing high-paying jobs to the state. The company filed for bankruptcy last year, leaving the state on the hook for as much as $100 million.

Chafee’s budget calls for the state to make a $2.5 million bond payment in the fiscal year beginning July 1, followed by annual payments of $12.5 million.

The Economic Development Corp. is now suing Schilling and some of its own former officials, saying they misled the board into approving the deal.

The House Finance Committee reviewed next year’s scheduled payment Tuesday. State Rep. Larry Valencia said he favors negotiating with bond holders to save on interest. But he’s opposed to defaulting on the bonds.

“If it sends a bad message if we default,” said Valencia, D-Richmond. “But there’s nothing wrong with sitting down to see if we can save some money.”

Copyright 2013 The Associated Press.

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