1. The most revealing comment in this week’s debate about repaying the 38 Studios bonds may have come from Rep. Karen MacBeth, who told RIPEC’s John Simmons at a hearing: “This committee isn’t about, is it cheaper or not to pay? It’s whether we should or should not.” Governor Chafee, Simmons and others are emphasizing that it would be more costly for the state to default than to pay, because default would damage the state’s credit rating – an argument buttressed by the SJ Advisors study released Friday. But MacBeth’s comment suggests she – and perhaps others – might refuse to pay even if it would cost the state more money in the long run. How much is Rhode Island willing to spend for the psychic and cathartic benefits of knowing taxpayer money isn’t being used to pay back the 38 Studios bondholders? At net present value, the SJ Advisors study puts the added cost from refusing to pay at $14 million to $219 million. Is it more palatable to Rhode Island lawmakers – and voters – to spend that money (spread across other bond transactions) for the satisfaction of knowing the 38 Studios bonds weren’t repaid directly? Plus, nobody can say with certainty what default would actually cost; interest rates remain historically low, Detroit and Greece are already borrowing again, and the 38 Studios debt is clearly unique. MacBeth also suggested a default is necessary to force negotiations with Assured Guaranty, the bond insurer, which is responsible for making the 38 Studios bondholders whole if Rhode Island won’t; bond analyst Cate Long suggests Assured Guaranty would make the payments but sue the state if that’s the path lawmakers take. (Now those would be some interesting depositions.)
2. Here’s a compromise option for Chafee, Teresa Paiva Weed and Nick Mattiello if they want rank-and-file lawmakers to approve the 38 Studios bond payment: in exchange, they could agree to Dawson Hodgson’s proposal for an independent investigative commission into the entire affair, armed with subpoena power. That might placate some lawmakers, and it would clear the air faster than a drip-drip-drip of leaks to Tim White. As Scott MacKay wrote Friday, “about all Chafee has done is file suit against the law firms and financial advisors that rode the gravy train all the way to bankruptcy. It is very sad that neither the Assembly nor Chafee had earlier put together a special commission to probe this deal and recommend a way forward.”
3. The debate over paying the bonds also hit the Democratic primary for general treasurer on Friday. In response to the SJ Advisors report, Ernie Almonte declared: “It is fundamentally irresponsible for any candidate or public leader to suggest that we not repay these loans; that demonstrates a clear lack of understanding of what our fiscal decisions mean for Rhode Island’s future.” That sounded like a reference to, among others, his opponent Frank Caprio, a former treasurer himself who tangled with Don Carcieri over the original deal and has expressed skepticism about repaying the bonds. “If I can save the taxpayers $80 million, I don’t mind being called names,” Caprio told WPRI.com in response to Almonte’s statement.
4. For what it’s worth, the 38 Studios bond payment accounts for 0.15% of Chafee’s proposed 2014-15 budget.
5. Why was Chafee apparently so surprised in April 2012 when he was brought to 38 Studios and told the firm needed new financial assistance from the state? This week’s revelation that Chafee right-hand man Richard Licht met with Curt Schilling and other 38 Studios insiders months before to discuss their need for tax credits suggests the administration should have been well aware the original $75 million wasn’t going to be enough. As Don Carcieri himself remarked to Tim White in 2012: “Nobody should have been surprised in April that they were running out of money. That’s something that could have been seen six, eight months before.” While Chafee was a fierce opponent of the original deal, the vast majority of the money 38 Studios got was formally doled out on his watch, not Carcieri’s. It’s surprising the new governor and his team didn’t seek any independent vetting of the company’s financials once he took over, particularly with Carcieri holdover and deal architect Keith Stokes still running the EDC at the time.
6. Here’s your weekly dispatch from WPRI.com reporter Dan McGowan: “You know who the biggest loser might be from the renewed interest in the 38 Studios debacle? David Sweetser, the owner of the vacant Superman building. This week Target 12 focused on the lucrative contracts Providence lawyer Michael Corso had with the failed video game company, intensifying the perception that the $75-million taxpayer-backed loan was an insider deal. Now Sweetser is seeking $39 million in state support to renovate Providence’s tallest building, but for the second year in a row, he may end up the victim of poor timing. House Speaker Nicholas Mattiello is already grappling with a tight budget thanks to lower revenue, skyrocketing Medicaid costs and proposed tax cuts, and with many of his colleagues openly discussing defaulting on the 38 Studios bonds, there may not be an appetite for supporting Sweetser’s project. Of course, it’s worth noting that Sweetser’s strategy has been completely opposite from the one used to secure $75 million for 38 Studios. The team leading the Superman building effort, which includes developer Arnold “Buff” Chace, has laid out exactly what it will cost to turn the building into a multi-use complex that will include 280 apartments. Ironically, the nail in the coffin for the Superman building could come from Corso, who built his reputation as a lawyer for Chace throughout much of the 2000s. If lawmakers have it stuck it in their heads that more insiders stand to profit from the Superman building, they’ll be hard-pressed to back the deal no matter how good it sounds.”
7. An intriguing development in the pension lawsuit – on Friday Judge Taft-Carter refused to delay the start of the trial from Sept. 15 to February, despite a joint request from both sides.
8. Those trying to read the tea leaves on the master lever debate should note the Rhode Island Senate’s floor session on Wednesday afternoon, when Providence Sen. Harold Metts delivered an impassioned speech in favor of keeping it – and was rewarded with a long ovation from his colleagues. Among those who stood to applaud: Senate Majority Leader Dominick Ruggerio, Paiva Weed’s powerful No. 2. “[W]hen you disagree with me on the issue, does this make you a racist or a Ku Klux Klan member? Absolutely not,” Metts said. “Why, then, on this legislation to remove the master lever in the Senate Judiciary hearing, were my constituents called misinformed, uneducated, ignorant and lazy? I take exception to it. Such comments not only describe people from my district, but yours, too, because 104,000 people voted using the master lever – about 25%.” Paiva Weed can’t be happy Mattiello let that bill pass the House, huh?
9. The outlines of a corporate tax overhaul that Rhode Island’s business and labor interests can probably unite behind are coming together: a rate reduction paired with combined reporting that uses single sales factor apportionment. (Read this study to learn more.)
10. Rhode Island spends a lot of time comparing itself unfavorably with Massachusetts, so it’s worth noting a striking counterexample: Massachusetts is scrapping its massively expensive unfinished Obamacare website, one of the most troubled in the entire country. The Pioneer Institute’s Josh Archambault now calls it “Massachusetts’ Big Dig I.T. project” – an astonishing failure by the state that pioneered the subsidized exchange approach under Mitt Romney. Rhode Island’s HealthSource RI, by contrast, has the nation’s third-highest enrollment (second-highest excluding Vermont, with its mandatory sign-up rules) and a 91% payment rate, with another insurer set to join this fall. That doesn’t mean HealthSource RI is perfect: its plans are expensive and limited in number, the Medicaid enrollment projections were way off, and there’s no strategy to pay for it. But at a basic level of execution, on this occasion Rhode Island succeeded and Massachusetts failed.
11. A loyal reader reports one of the protagonists on the CBS show “2 Broke Girls” returned to her hometown of Hope, Rhode Island, in this week’s episode to get her diploma. “Couple of references to Providence, Cranston,” he reports, adding: “If she was living in Hope, then she must have gone to Ponaganset High.”
12. If the publisher of The New Republic had endorsed Angel Taveras, Gina Raimondo or Clay Pell, you’d know about it. That’s basically what happened this week on the other side of the aisle when Jack Fowler, publisher of William F. Buckley’s legendary conservative publication National Review, endorsed Allan Fung in a blog post and solicited donations to his campaign. (The headline: “Fung S(h)ways Rhode Island Conservatives.” Get it?) It’s a nice shot in the arm for the Fung campaign, even if Fowler’s assessment of his odds of victory – “a long shot, but doable” – wasn’t exactly glowing. The Republican primary continues to be worth keeping an eye on.
13. The city of Providence will spend $103 million on medical and dental benefits in the 2014-15 fiscal year – and that’s actually down from $111 million in 2011-12, Angel Taveras’s first full year in office, according to the mayor’s new budget proposal. That’s a sizable chunk of the entire $678 million tax-and-spending plan – a reminder of how much the cost of health care matters to municipal finances.
14. Here’s a roundup of the latest Campaign 2014 endorsements we’ve received: the Warren Democratic Town Committee endorsed Gina Raimondo and Frank Caprio … the International Alliance of Theatrical Stage Hands Local 23 endorsed Clay Pell and Mike Solomon … the Johnston Democratic Town Committee endorsed Dan McKee … the Pawtucket Democratic Town Committee and the International Brotherhood of Teamsters Local endorsed Guillaume De Ramel … the Coventry Democratic Town Committee endorsed Nellie Gorbea … the Tiverton Democratic Town Committee endorsed Seth Magaziner … and the North Smithfield Democratic Town Committee endorsed Frank Caprio.
15. If you missed them the first time around, now’s your chance to check out some of the other items we published this week: a whole bunch of stories about 38 Studios, which Dan McGowan rounded up here … Hope Global’s CEO told me the company may leave Rhode Island … Angel Taveras says it’s “up to the voters” whether Buddy Cianci should return to City Hall … and warned the next mayor to be fiscally responsible … and also got the backing of Eva Longoria … Frank Ferri said he may run for lieutenant governor … a chart that shows how the unemployment tax system is out of whack … and 43% of Providence homicides remain unsolved since 2000.
16. Set your DVRs: This week on Newsmakers – Michael Yelnosky, incoming dean of Roger Williams School of Law, on the pension litigation; former Providence Mayor Joseph Paolino on his bid for Newport Grand. Watch Sunday at 10 a.m. on Fox Providence. This week on Executive Suite – Hope Global President and CEO Cheryl Merchant. Watch Saturday at 10:30 p.m. or Sunday at 6 p.m. on myRITV (or Sunday at 6 a.m. on Fox). See you back here next Saturday morning.