Why conservatives play fast and loose with RI’s credit

Don Carcieri’s epic economic fail of investing in 38 Studios may have a silver lining for the local conservative movement he once led. And both Republican candidates for governor are for it, while the Democrats are opposed.

The Providence Journal points out that gubernatorial candidates are split along party lines when it comes to repaying the 38 Studios bond.

Allan Fung said the warnings from Wall Street about fiscal repercussions are overstated and Ken Block, who never met a opportunity to issue a press release he didn’t exploit, railed against “the threats coming from Wall Street insiders of dire consequences for the state if they fail to make good on the 38 Studios bond,” according to the ProJo. Leading Democratic candidates were equally united that the bond should be repaid and Sam Howard wrote about why the bond payment should be made in a post yesterday.

Rhode Island owes $12.5 million on the bond we floated to loan Curt Schilling $75 million to move his unproven and ultimately unsuccessful video game company here from Massachusetts – an economic growth strategy birthed by Don Carcieri, the last politically powerful Republican in Rhode Island. The gamble failed in spectacular fashion when 38 Studios went bankrupt in 2012. Because we took a moral obligation bond rather than a general obligation bond, there is no legal responsibility to pay the bond, though not paying would likely make future borrowing more expensive.

That may be a bad outcome for Rhode Island, but that’s not necessarily a bad outcome for the Grand Old Party in Rhode Island. Best known for espousing 40 years of Democratic failure and seeking to shrink the size of government, damage to the state’s credit rating as a result of not paying the 38 Studios bond would serve both these conservative political objectives. It would also make it more expensive to repair aging infrastructure, which would give the construction industry a nice boost. These are policies pushed by local Democratic candidates that Republicans generally don’t care for.

Rhode Island is the only state in the nation with a law that stipulates bond holders will be paid prior to other obligations when it comes to municipal financing. The general assembly passed that law at the expressed interest of protecting city’s and the state’s credit ratings. Maybe the General Assembly should consider legislation that would prevent Republicans from damaging our credit rating too?