By Katherine Gregg, Philip Marcelo and Randal Edgar
PROVIDENCE - After a failed early-morning move by angry lawmakers to strip the first 38 Studios payment out of the state budget, House Speaker Gordon D. Fox called a recess until 2 p.m. Wednesday to try to plug a $12.9 million hole opened hours earlier in the marathon debate.
The 54-to-20 vote against Rep. Charlene Lima's bid to bar the first $2.5 million taxpayer payment for the state's failed $75 million investment in retired Red Sox pitcher Curt Schilling's video-game company came at 1:28 a.m.
And it came after an hour-and-a-half long debate marked by high-pitched flashes of anger, exhortations and finger-pointing.
Lima, D-Cranston, asked why Rhode Island taxpayers should bail out the "multi multi millionaire companies'' who bought the high-risk bonds. "They're experts, they knew what they were getting into, who cares about them?''
And, "do not fool yourselves for one second to think that you can explain a 'yes' vote by hiding behind (a) well-spun, well manufactured and totally untrue argument that the state's bond rating will suffer and prevent us from raising bond revenue in the future. This is a bold-faced lie,'' she said.
"This is Waterloo," said Rep. J. Patrick O'Neill, D-Pawtucket. "This is the issue that is going to define how we are going to do things in this room. If you vote to fund this $2.5 million, you condone how 38 Studios came to light. You own the birth of this beast."
"Who are we protecting?'' shouted Republican Rep. Joseph Trillo, R-Warwick. "Are we protecting the governor because he's the one that dropped the ball...with no oversight? Is that who we are protecting? No wonder why he wants us to pass it. This thing really stinks.''
But House Majority Leader Nicholas Mattiello pleaded with colleagues to save Rhode Island from becoming the "first state since the Great Depression'' to renege.
"I believe that today a $2.5 million investment is prudent and worthwhile. Maintain the status quo, don't default, don't make the entire note due and payable at this time, and continue to consider it, see what happens with the lawsuit, and then we'll take a look at it,'' Mattiello said.
Added House Oversight Committee Chairman Michael Marcello, D-Scituate: "I'm angry that we're here at this point, having to pay this back. I wish that it had never happened.''
But, "guess what?'' Marcello said. "This is where the rubber hits the road. This is a tough decision. And if I lose my seat over it, so be it. But I'll be able to go to sleep at night knowing that I did my best to protect the taxpayers of Rhode Island."
With no debate at all, the House voted 73 to 2 to abolish the Job Creation Guaranty Program that lawmakers created in 2010, that provided the state-backed loan to Schilling's now-defunct 38 Studios.
The 38 Studios debate is not necessarily over.
The lawmakers have not yet gotten to the portion of the budget that spells out how the General Assembly proposes to spend the $8.2 billion during the year that begins July 1. Included within the budget article is the $2.5 million for the 38 Studios bondholders.
When they return Wednesday afternoon, House leaders will also have to address a $12.9 million hole that opened when they lost a battle over a promised bonus pension payment that had been diverted to other spots in the budget.
Union officials lobbied hard over the last week for the state to make good on a pledge made after the state's 2011 dramatic pension overhaul froze cost-of-living increases to Rhode Island's retired public workers until the fund is in better financial shape.
The law required that any state money that comes in -- over and above the state's official revenue estimate -- go into the state pension fund. This year that would have totaled $12.9 million. But Governor Chafee opted to carry the money forward into next year's budget. And House leaders -- working to avert a potential $30-million deficit -- agreed.
"We're just going to go back on that promise?" said House Minority Leader Brian Newberry, R-North Smithfield. "Why should anyone ever trust us again?"
Rep. Karen MacBeth, D-Cumberland, sought to redirect $12.9 million to the pension fund, and plug the hole with an equal amount from the legislature's own $38.6 million budget.
After that failed, one lawmaker after another rose from their seats to talk about the immorality of making this promise to Rhode Island public employees, while cutting their pensions, then shirking it.
"If 38 studios is a moral obligation, what is this?" asked Rep. Larry Valencia, D-Richmond. "I contend this $12.9 million is a moral obligation as well.''
Instead of permanent repeal, House Finance Committee Chairman Helio Melo suggested a one-time suspension. But at 11:47 p.m., upset lawmakers voted 39-to-36 to defeat the diversion of the money, leaving a $12.9 million hole in the leadership spending plan.
Applause rang out at the start of the hours-long debate when Melo announced the budget bill had been reworked to postpone tolls on the new Sakonnet River Bridge until April, at the earliest, pending a study.
But it was a rare moment of cheer during a grueling, hours-long House debate that also touched on abortion funding, the future of Newport Grand and the controversial shift of 6,500 low-income parents from the state-subsidized health insurance program known as RIte Care over to Obamacare, where they will pay premiums that advocates say they can ill afford.
Lawmakers bemoaned the potential impact on low-income families. And tempers flared at times. But in the end, even the staunchest advocates acknowledged they did not know where else to find the millions of dollars to avert the move.
A handful of lawmakers railed against proposed apprenticeship requirements on construction projects, eligible for historic tax credits. "Give jobs to all Rhode Islanders not just the select few that have a big lobbying arm in this building," implored Rep. Jared Nunes, D-Coventry, who works in a family construction business.
But the apprenticeship-requirements sought by a local arm of the Laborers' International Union survived, along with most of the other potentially controversial items in the proposed budget.
Along the way, Mattiello, the House majority leader, talked about his hope that Newport voters eventually allow Newport Grand bid to become a full-scale casino.
After city voters defeated Newport Grand's casino bid in November, the owners of the electronic slot-parlor went to the legislature asking for financial relief.
They didn't get as much as they requested. But the budget would allow Newport Grand to temporarily keep an estimated $1 million more of the video-slot revenue it generates for the state.
"I know there's a lot of very important competing needs," Mattiello, D-Cranston, told colleagues. But "if we don't assist them right now, and give the voters of Newport another opportunity, hopefully to reconsider their decision, Newport Grand may not survive ... and that hurts a revenue source."
Abortion funding sparked a short, but emotional series of exchanges.
Rep. Patricia Morgan, the former head of the state GOP, introduced an amendment to require the state's soon-to-emerge Health Exchange to offer reduced-price plans that do "not provide coverage" for abortions alongside those that do.
Melo said the state budget was not the proper vehicle for the debate because the health exchange is being launched with federal dollars, to which Rep. Samuel Azzinaro, D-Westerly, said: "Where does the federal government get their money from? They get it from us, we're the taxpayers."
"You want choice?" Azzinaro said. "We talk about choice, What choice do you have if you only have a plan that says we're going to fund abortions."
Fox short-circuited the debate, by ruling Morgan's amendment out of order.
The lawmakers lamented the proposed shift of 6,500 parents over to Obamacare where advocates say they face new premiums of up to $97 a month and out-of-pocket expenses of up to $2,000 a year. The goal: to save the state an estimated $6 million over the next year.
Rep. Maria Cimini, D-Providence, said she was conflicted because the Affordable Care Act "is a program that I fully support, but we're also requiring parents who've never had to pay a health care premium to do so ... and these are families who live in some cases on less than $25,000 a year."
While "I think it's a poor public health decision that we're making right here," Cimini said she did not propose an amendment to try to avert the move because "we're in tough budget times and it was difficult to find the funding for that."
Mattiello acknowledged the concerns but said the budget would not throw people "on the streets ... We're giving them a good to a very good alternative ... [and] not one of you has said to me, 'Nick, here's where the money comes from.' "
The proposed revival of historic tax-credits for the rehabilitation of old mills and commercial buildings sparked a hard-fought debate that ran more than two hours.
The budget would make available up to $34 million in previously allocated, but unused credits with a $5-million cap on the amount the developers of any single project could get to offset state income taxes.
The flashpoint was a provision tying the availability of the tax credits for projects costing $10 million or more to the developer's use of contractors with "approved" apprenticeship programs.
State Rep. Jared Nunes, a West Warwick Democrat that owns a construction company, was among a number concerned that the provision would unfairly put non-union companies at a disadvantage.
"This is a great article and we are going to screw it up. I'm speechless. This reeks of special interest," said Nunes. "We have to create jobs. Not just union jobs."
Morgan, R-West Warwick, proposed an amendment striking the provision. "This is creating a monopoly. That's all this is." But her amendment was ultimately defeated.
It remained unclear why a new state tax credit for manufacturers expected to largely benefit submarine maker Electric Boat was unexpectedly pulled from the budget bill.
Melo, the East Providence Democrat who had authored the proposal, said the Democratic leadership struck it from the budget after concerns were raised. He did not elaborate.
The proposed manufacturing tax credit program would have offered a tax discount worth $500 for every new worker a qualified company hired. To qualify, a company, at minimum, would have had to invest $10 million in real estate, equipment or other capital purchases and create at least 100 new full-time jobs.
Electric Boat and other local defense industry leaders had pushed hard for the tax break for manufacturers. But some companies complained the proposed qualifications would be tough for relatively smaller manufacturers to meet.