PROVIDENCE, R.I. --The state budget plan to be unveiled by Rhode Island lawmakers Tuesday will include a plan to pay the 38 Studios debt, confirmed Senate Finance Committee Chairman Daniel DaPonte.
"As far as we've come so far, it is," he said following a more than hour long briefing for senators on why the state needs to honor the debt, which is roughly $100 million when interest is factored. "I am certainly no happy about the circumstances, but as a matter of principle, the state has to live up to this obligation."
The comments came hours before the House Finance Committee was set to unveil its version of the state budget Tuesday night.
Senators heard from Governor Chafee and state General Treasurer Gina Raimondo's top deputies on the importance of Rhode Island taxpayers paying the debt left after the video-game company went bankrupt in 2012.
Chafee's Director of Administration Richard Licht argued that paying the debt is critical to maintaining Rhode Island's hard fought reputation in the financial market.
Repeating arguments the administration and financial experts have made before, Licht said failure to pay the debt would affect the state and municipalities' ability to borrow.
He highlighted findings from a cost and benefit analysis the administration has conducted showing that under the best-case scenario, Rhode Island might end up saving money over the long term by defaulting on the debt.
But more likely than not, Licht said, the state and its municipalities would wind up paying more in higher interest rates.
Licht said there is "already a cloud over the state's reputation," pointing to Monday's decision by Moody's Investors Service to place all the state's debt, which totals $2.1 billion, under review for possible downgrade. It also downgraded the 38 Studios bonds by two notches, from A2 to Baa1.
Raimondo's chief legal counsel Mark A. Dingley agreed, noting that reverberations from a failure to pay the debt would be felt 20 to 30 years down the line.
"We'd be passing on unknown consequences to the next generation," he said. "It's the best decision for Rhode Island now and for generations to come."
Whether or not to pay the debt is a key question in this year's budget debate. Chafee has proposed a multi-year plan to pay down the debt that includes a $2.5 million payment next year.
But some lawmakers have called for the state not to make the payments, saying that the failed $75 million investment in the company was never approved by voters.
Office of Management and Budget presentation to R.I. Senate
Office of Management and Budget memorandum on Moral Obligation Bonds