PROVIDENCE, R.I. -- The taxpayer bill is coming due for the state's doomed $75 million investment in retired Red Sox pitcher's Curt Schilling's failed video-game venture 38 Studios.
Governor Chafee's proposed budget for the year starting July 1 contains an initial $2.5 million payment to the bondholders, with the rest coming from a reserve fund created when the $75 million was issued.
The ill-fated investment will cost taxpayers $12.5 million a year for seven years, starting in the budget year that begins July 1, 2014, according to testimony to the House Finance Committee on Tuesday.
Rep. Larry Valencia, D-Richmond, asked Governor Chafee's administration director Richard Licht if the state could negotiate a lower payment rate with the bondholders, or perhaps borrow money at today's lower rates to pay the state-guaranteed 38 Studios debt now, and avert the 7-percent interest payments.
Licht said the state would face a huge pre-payment penalty if it sought to borrow cheaper money to repay the taxable bonds early, which would mitigate savings.
Gary Sasse, director of Bryant University's Hassenfeld Institute for Public Leadership and a former director of administration, responded in an e-mail: "Before the General Assembly decides to appropriate this large sum to pay the 38 Studio debt, other options need to be publically [sic] vetted. These options include funding the debt as proposed, defaulting and attempting to [negotiate] a settlement that is more favorable to Rhode Island taxpayers.
"Moral obligation bonds only require that the General Assembly be asked to appropriate taxpayer dollars, they are not a promise to pay," he wrote.
"To represent the interest of all RI taxpayers the GA should undertake and make public a rigorous analysis of the costs and benefits of each of the three option(s), including what impact they might have on the State's ability to fund programs to grow the economy or provide tax relief...There is too much money involved to have this decision fly under the radar.''
Chafee says the state must honor the debt.
In a related development, several lawmakers introduced a bill to ban the state from making any payments to the holders of these moral obligation bonds.They are: Reps. Karen MacBeth, Spencer Dickinson, Robert Jacquard, Michael Chippendale and James McLaughlin.