PROVIDENCE – Members of the House of Representatives will reconvene Wednesday afternoon to continue debate on a fiscal 2014 budget.
The suspension of the session came after Rhode Island lawmakers fell short by a 54-20 vote on a measure that would have stripped from the budget the initial $2.5 million payment next year on $75 million of bonds that drew ex-Boston Red Sox pitcher Curt Schilling’s failed 38 Studios LLC videogame company to Providence.
The margin was four votes more than are needed to include the money in the final spending measure.
According to the Associated Press, the House hoped to pass the $8.2 billion budget proposal, but Speaker Gordon D. Fox called a recess until 2 p.m. Wednesday after 10 hours of debate.
Lawmakers rejected a proposal from legislative leaders to skip a $12.9 million contribution to the state worker pension fund, saying, according to the AP, that they could not support underfunding the pension system while being asked to set aside money for the failed investment in 38 Studios.
Moves to avoid covering the payment led Moody’s Investors Service to put the state’s Aa2 credit rating under review for a cut, saying that an unwillingness to make good on bonds backed by the state’s “moral obligation pledge” would erode the credit quality of more than $2 billion in debt.
“It’s going to have a huge ripple effect on all of us,” if Rhode Island reneges on the obligation, Rep. Linda Finn, D-Middletown, said on the House floor during the debate. Even talking about not making the bond payments “is such a bad reflection on our state,” she said.
The R.I. Economic Development Corporation issued the revenue securities in 2010 to get Schilling to move the company to Rhode Island from Maynard, Mass., bringing the promise of hundreds of jobs.
About two years later, 38 Studios entered Chapter 7 bankruptcy liquidation amid allegations of mismanagement and unmet obligations. About 400 people lost their jobs as a result.
The 38 Studios bankruptcy put the state of Rhode Island on the hook for $112 million, including interest, with $90 million in outstanding payments. After the initial $2.5 million payment in 2014, the state plans to make annual payments of $12.5 million, said the Associated Press.
According to the news source, if Rhode Island willingly defaults, it will be the first time a state has taken such an action since former Confederate states did so following the Civil War.
With the proposal to underfund the pension system rejected, there is a $12.9 million gap in the state’s budget that must be filled. According to the AP, the current budget proposal includes no significant tax or fee hikes, would increase funding for public schools and higher education by $40 million, sets aside $4.5 million for workforce development and authorizes $35 million in historic redevelopment tax credits.
The budget also eliminated sales tax on artistic works and delays plans for a toll on the new Sakonnet River Bridge until April.
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