Following a contentious session that ended well past midnight, Rhode Island’s House of Representatives resumed debate Wednesday over an $8.2 billion state budget that includes a controversial $2.5 million payment to 38 Studios bondholders.
“We’re all a little sluggish today,” Speaker Gordon Fox said as the afternoon session began.
It followed a 12-hour Tuesday marathon after which he told his colleagues: “It’s 1:30 in the morning and nothing good happens after 1:30, my father told me.”
While the initial bond payment to cover the demise of 38 Studios, the video-game company owned by former Boston Red Sox pitcher Curt Schilling, has been the headline grabber in this legislative session, a new budget complication emerged Tuesday when House members rejected by a 39-36 vote a plan by Gov. Lincoln Chafee and Fox to skip a $12.9 million payment from the state’s revenue surplus to its retirement fund.
“I don’t know what we’re going to do [Wednesday]. All I know is that we’re $13 million in the red,” said Fox.
Although House Finance Chairman Helio Melo, D-East Providence, said the withheld pension payment would not affect the annual required contribution for this fiscal year, Rep. Karen MacBeth, D-Cumberland, said the move would violate a promise the state made two years ago -- when it sharply reduced pension benefits in passing a landmark law -- not to make further cuts.
Noting a $400 million shortfall in pension plan earning projections because of overly optimistic interest rate assumptions, MacBeth said: “I understand that $12.9 million won’t touch that, but that’s another $12.9 million we’ll be behind. And a couple of years from now, we’ll be sitting here saying 'our pensions are in trouble, we need to do something.’ ”
Meanwhile, Rhode Island is staring an estimated $89 million in debt, backed by the state’s moral obligation, related to Schilling’s company, which last year filed for Chapter 7 liquidation. The Rhode Island Economic Development Corp. in 2010, with the backing of then-Gov. Donald Carcieri, provided the company a $75 million loan guarantee.
Moody’s Investors Service, saying that moral and general obligation bonds are essentially the same, has warned of a multinotch downgrade should the state default on the payment. Chafee and General Treasurer Gina Raimondo favor paying the debt. Vocal opponents include MacBeth and House Minority Leader Brian Newberry, R-North Smithfield.
Moody’s rates Rhode Island’s GO bonds Aa2, while Fitch Ratings and Standard & Poor’s assign AA ratings.
The House on Tuesday defeated by a 54-20 margin a bill specifically calling to suspend the payment pending a legislative review, although debate was expected to resurface again on Wednesday.
The 38 Studios saga has cast a national spotlight on the Ocean State.
“While observers of municipal credit are focused on Detroit, Jefferson County [Ala.] and Harrisburg, the state legislature in Rhode Island is also being closely watched,” said Alan Schankel, a managing director at Janney Capital Markets in Philadelphia.
Also under consideration is $10 million in seed money for a municipal road and bridge revolving fund, a Raimondo initiative. The amount any single community would receive is capped at 50%.
“This new program will establish a sustainable option for cities and towns as they tackle their long-term road and bridge projects,” she said.
The Rhode Island Clean Water Finance Agency, which has triple-A ratings from the three major rating agencies, would coordinate the fund. It now administers state and federal funds for local sewage and drinking-water projects.
An amendment to the budget bill would postpone tolls on the Sakonnet River bridge between Portsmouth and Tiverton, pending a study.