BOSTON – Rhode Island lawmakers eased the threat of defaulting on bonds that backed former Boston Red Sox pitcher Curt Schilling’s videogame company, agreeing to cover the debt in a step that may preserve the state’s credit rating.
By passing the $2.5 million payment 53-19 yesterday, Rhode Island’s House of Representatives may keep the state from becoming the first to renege on bonds since Reconstruction after the Civil War. The $75 million state financing helped persuade Schilling, 46, to bring 38 Studios LLC to Providence in 2010. It went bankrupt last year, leaving taxpayers to cover its debts.
“This is a tough decision, no question about it and if I lose my seat over it so be it,” Rep. Michael Marcello, a Providence Democrat, said during debate over the payment. “I will sleep at night knowing that I did my best to protect the interests of the taxpayers of the state of Rhode Island, not only for today but tomorrow and the next 20 years.”
Moody’s Investors Service last week put the state’s credit under review for a downgrade, saying that an unwillingness to cover the bonds, which were sold by the R.I. Economic Development Corporation and were backed by the state’s “moral obligation pledge,” would undermine the credit quality of more than $2 billion in debt outstanding. A cut from Aa2, Moody’s third-highest level, may raise Rhode Island’s borrowing costs.
The rating company based in New York planned to evaluate the margin of legislative support as well as the final outcome.
“If this appropriation is included in the budget but it’s only approved so that a couple of votes one way or another could alter the course of this, it might create a concern for the rating in future years,” Robert Kurtter, a Moody’s managing director, said last week in an interview.
The House narrowly passed a fiscal 2014 budget that included money for the debt payment, voting 52 to 20 to approve the spending plan. Passage required at least 50 votes.
The measure still needs to pass the Democratic-led Senate, where there has been less debate over covering the Schilling debt. Governor Lincoln Chafee, 60, backs making the payments, said Christine Hunsinger, a spokeswoman for the Democrat.
In debate over the issue that began in the House June 25, opponents urged their colleagues not to commit taxpayer dollars to meet the obligations to bondholders.
“Who cares about them?” Representative Charlene Lima, a Cranston Democrat, said of investors. “They bought these bonds; they’re experts. They knew what they were getting into.”
Bond buyers “bet wrong” when they put money behind 38 Studios, Representative Spencer Dickinson, a Democrat from Wakefield, said. Other foes have said that investors would be paid in any case, as the debt is backed by Assured Guaranty Ltd. Company spokesman Robert Tucker has said the Bermuda-based insurer would cover any missed payments on the securities.
USAA Life Insurance Co., based in San Antonio, held about $36 million of the debt at the end of March, according to data compiled by Bloomberg. Los Angeles-based Transamerica Investment Services had $19.3 million, the data indicate.
The financing shows the risks that states and localities take when offering businesses incentives to add or create jobs. Since 1976, states and municipalities have committed about $64 billion in subsidies of $75 million or more to boost jobs, according to a report released this month by Good Jobs First, a Washington-based research group that promotes government accountability in economic development.
Since 2008, the average frequency of such deals has doubled each year, as has their average size, according to the report.