38 Studios was back in the news last week, after Rhode Island struck a 26-million-dollar deal to settle claims against Wells Fargo and Barclays. Those are two of the banks involved in a deal to invest millions of taxpayer dollars in the company, which were lost when 38 Studios declared bankruptcy . RIPR political analyst Scott MacKay says it’s time for state leaders to show taxpayers they’ve learned concrete lessons from 38 Studios.
It’s been six years since 38 Studios stuck taxpayers with a $75 million subsidy for a video game company founded by Red Sox pitching hero Curt Schilling. After the company’s bankruptcy, there has been much grandstanding and political finger-pointing.
What hasn’t happened is a plan to make sure such wasteful spending and plain stupidity don’t infect our state government ever again.
The latest settlement is mostly good news. It calls for Wells Fargo Securities and Barclays Capital to pay the state about $26 million, bringing the total value of legal settlements so far to $42 million before legal fees. That leaves taxpayers with a little more than $32 million to pay back the balance from a state-backed loan.
In another development, the Providence Journal is seeking records from the state police and attorney general’s investigation of 38 Studios, which resulted in no criminal charges against principals in this costly mess. While every sane Rhode Islander wants more transparency in government, don’t be surprised if another trove of records tells us little that we don’t already know.
Whatever one thinks of Atty. Gen Peter Kilmartin, his prosecutors are professionals. Ditto for Col. Steven O’Donnell of the state police and his investigators. Rhode Islanders are naturally upset that no one in power has been held criminally accountable.
Yet, the job of a prosecutor is to determine whether the evidence gathered can reasonably lead to a conviction. Sometimes a really slippery, stupid act by politicians is just that and doesn’t justify criminal charges. Release of the investigative reports may do little more than create a peanut gallery of wannabe lawyers second-guessing prosecutors. That won’t lead to taxpayers getting any more money back.
What does have promise is the continuing lawsuit – filed by former Gov. Lincoln Chafee, a staunch opponent of the deal – against the financiers and lawyers who hastily pushed through the 38 Studios bonds.
The banks have never admitted any wrongdoing. That’s not surprising. But taxpayers can take solace because they are paying millions to avoid a trial. When is the last time a bank gave away money to taxpayers? Many of us remember when these too-big-to-fail institutions had their hands in our pockets.
Governor Gina Raimondo and others in the state’s business and political establishment have long said that the Ocean State must put 38 Studios behind us, stop fearing government investment in private enterprise and move forward with rebuilding our economy.
This is a laudable sentiment, but it is too focused on the attitudes of Rhode Islanders. A word to the politicians: we, the people, didn’t create this. The political class did.
They need to learn some lessons. From the governor down to those running for Assembly, it’s way past time to change the way business is done at the Statehouse.
No more “moral obligation bonds” of the sort that were used to finance 38 Studios. They’re not approved by voters, which gives politicians a way around the Rhode Island Constitution and its clear requirement that voters approve any borrowing of large sums of money. If politicians can’t convince voters that an expenditure is worthy , it shouldn’t happen. Floating moral obligation bonds means that the politicians don’t trust their constituents, or worse, don’t care what voters think.
I’ve said this before, but I’ll say it again. It’s time to stop the midnight Statehouse deals. Little good happens at the capitol when lawmakers horse trade at the end of the session. History tells us that this is when chicanery rules, whether in the slippery pension deals of yore, or the loosening of financial regulations that led to the 1990s banking crisis. And don’t forget the recent shenanigans that slashed support for the state health insurance commissioner.
Politicians need to hold public hearings on large financial outlays. The General Assembly routinely has extensive opportunities for citizens to comment on the state budget. The same rules should apply to taxpayer-financed projects. None of the politicians responsible for 38 Studios, including former Gov. Don Carcieri and then-House Speaker Gordon Fox, have ever given a plausible explanation for why this project didn’t receive a proper public vetting.
When you bump into a stumping Assembly candidate in this campaign season, ask them some hard questions. Don’t take platitudes for an answer. We will move on from 38 Studios – when they do.
Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:45 and 8:45 and on All Things Considered at 5:44. You can also follow his political reporting and analysis at our `On Politics’ blog at RIPR.org
