Chafee bucks AFL-CIO, stands by law protecting bondholders

Gov. Lincoln Chafee will work to block efforts by the state’s top labor leader to repeal a new law that protects bondholders from incurring losses if they loaned money to Central Falls and other bankrupt cities.

The Rhode Island AFL-CIO will submit legislation when the General Assembly returns in January that would scrap the law, union president George Nee said Wednesday at a Greater Providence Chamber of Commerce breakfast.

The law – which The Wall Street Journal said makes Rhode Island “a bondholder’s dream” – guarantees investors will get paid back even if a community files for Chapter 9, giving them a right to tax revenue that other creditors, like pensioners, don’t have. Chafee signed the first-of-its-kind legislation on June 12.

Nee said the law is fundamentally unfair because it requires workers and retirees to bear the burden of restructuring insolvent municipalities without making investors who placed bad bets share in the pain. But Chafee spokeswoman Christine Hunsinger said the governor “is still incredibly supportive” of the policy.

“The governor does not feel that it only protects bondholders – he feels it protects the citizens of Rhode Island,” she said.

“What it does is protect the bond rating of the state by allowing bondholders to have that extra confidence that they will get paid,” Hunsinger said. “It’s a stopgap to keep the lowering of a municipal bond rating from affecting Rhode Island as a whole. The governor feels that it is a greater good, and would work to oppose repeal.”

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