Six years have passed since the bankruptcy of the video game company 38 Studios. But two of the firms sued by Rhode Island over 38 Studio’s demise continue to perform lucrative work for a quasi-public state agency.
A large dump truck carries dirt away from Barrington’s middle school of the future. Construction trucks move around the site, and a box-like building is emerging after months of work. Barrington Town Council President Mike Carroll said the middle school project would not happen without a state quasi-public agency known by its acronym. RIHEBC.
“RIHEBC financing was critical to making this project work,” Caroll said.
RIHEBC stands for the Rhode Island Health and Educational Building Corporation. It’s one of the biggest bond issuers in the state. Since its founding in 1966, RIHEBC has issued $8.7 billion in bonds to finance building projects at schools, colleges, and hospitals. And bonds issued by the agency enabled Barrington to borrow more than $63 million to replace the town’s badly outdated middle school.
“RIHEBC acts as a conduit for Barrington to gets its own financing,” Carroll said.Listen to an audio version of this story.
Even better, Carroll said, RIHEBC’s borrowing power translates into savings. That’s because the state reimburses cities and towns for part of the overall cost.
“One of the advantages of RIHEBC is that we get not just a return from the state on the principal, but also on the interest,” Caroll said. “And that could mean as much as $10 million on a project of this size.”
RIHEBC’s role in financing various projects like this is common knowledge within state government. Less well known is how the quasi-public agency continues to employ a law firm, now known as Moses Ryan, and a financial adviser, now known as Hilltop Securities. Both were sued by the state over 38 Studios.
This work is quite lucrative. RIHEBC said it has paid Moses Ryan more than $3.4 million between 1998 and 2017, and more than $2.2 million to financial adviser Hilltop Securities since 2003.
Hilltop Securities was not part of RIHEBC’s bond issue for the Barrington Middle School project.
But Republican gubernatorial candidate Patricia Morgan said she’s troubled that a quasi-public state agency like RIHEBC keeps employing two of the firms sued in the 38 Studios case.
“You have to wonder about the judgment of the people who continually go back and use the same vendors,” Morgan said. “Like, it just keeps going on, this merry-go-round. Once you get on the merry-go-round, you never have to get off the merry-go-round.”
Morgan said it’s time to push companies like Moses Ryan and Hilltop Securities off the merry-go-round of contracts with quasi-public agencies.
“We shouldn’t go back to people who we’ve sued in the past and who have made settlements to the state as a result of those suits,” she said.
RIHEBC’s longtime director, Robert Donovan, declined to speak on tape for this story. Instead, he answered questions by email. Donovan said RIHEBC decided to maintain its ties with Moses Ryan and Hilltop Securities after regularly inviting other firms to compete for the same work. Donovan said the two companies’ performance has been “very satisfactory.” He said there’s no concrete reason for RIHEBC to sever its relationship with the two firms. (Donovan, who has worked for the state for decades, plans to retire in December; RIHEBC began accepting applications for his post in April.)
Moses Ryan and Hilltop Securities did not respond to requests for comment. Both companies were involved in the effort to lure 38 Studios to Rhode Island with a $75 million loan guarantee in 2010.
But 38 Studios went bankrupt two years later after producing only one game, Kingdoms of Amalur: Reckoning.
The state filed a lawsuit against 13 defendants, contending they knew or should have known the company would flop. Like the other defendants, Moses Ryan and Hilltop Securities made settlements paying the state millions of dollars while not admitting liability or wrongdoing.
RIHEBC and its vendors have strong political connections. RIHEBC pays former House Speaker William Murphy, now a Smith Hill lobbyist, $5,000 a month to represent its interests at the Statehouse during the legislative session.
Moses Ryan’s founder, Thomas Moses, is also an influential person.
He’s a former head of Planning and Development for the City of Providence. His biography said Moses has been involved in almost every major real estate project in the city and provided legal services to every community in the state. The law firm’s other principal, Mark Ryan, is a former top executive at The Providence Journal. State campaign finance records show that employees at Moses Ryan have donated almost $60,000 to various political candidates over the last 15 years.
John Marion of the good government group Common Cause of Rhode Island calls that amount significant, but not uncommon for a large law firm that does a lot of business with the state.
“I think it’s to ingratiate themselves with the people making decisions about legal services, to be honest,” Marion said.
As RIPR reported last year, Hilltop Securities remains the financial adviser for many of the state’s cities and towns, even after being sued in the 38 Studios case.
Rhode Island has more than 20 quasi-public agencies. Marion explains how they work: “Quasi-publics are by definition designed to have a degree of independence so they can act more like a business.”
Marion said one benefit of quasi-public agencies is how they can issue bonds faster and more independently than the state.
“But with that independence, comes the tradeoff, which is less accountability,” he said. “In some ways, we put our trust in the boards of those quasi-publics to act like a corporate board and provide good oversight of the day to day management.”
As a quasi-public state agency, RIHEBC is not on the radar screen of everyday Rhode Islanders. But RIHEBC’s statewide impact can be seen in how it has issued bonds in recent years to pay for school construction in communities ranging from Woonsocket to Warwick and many others.
If voters approve an ambitious new school building repair program in November, state officials say RIHEBC will not be involved in issuing bonds for that.
Rhode Island’s general treasurer, Seth Magaziner, replaced Hilltop Securities as the state’s financial adviser in 2015. But the treasurer’s office said quasi-public agencies are responsible for making their own financial decisions.
The campaign of Cranston Mayor Allan Fung, a Repubican running for governor, did not respond to a request for comment for this story.
In a statement, Governor Gina Raimondo’s office said RIHEBC is an independent agency, and the governor is not involved in how it selects its vendors.
