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Politics as Usual: Boy, the state sure struck out with 38 Studios (OPINION)

May 29, 2012

It was already a pretty busy news cycle last week – Governor Chafee’s executive order on gay marriage, the Channel 12 poll on the 1st Congressional district primary and the tussle over Woonsocket’s supplemental tax bill – and then the 38 Studios fiasco came and sucked all the oxygen out of the room.
Really, the only surprising thing about this news is that it seemed to take everyone by surprise.
Just about everyone in Rhode Island, except then-Gov. Donald Carcieri and his pick for EDC honcho, Keith Stokes, said at the time that this deal was irresponsible to the point of lunacy.
Former Red Sox pitcher Curt Schilling’s video game fantasy is exactly the type of thing venture capital firms are there for: companies with huge pools of money willing to take a flyer on a very risky schemes in the hopes that they will pay off big. It is not the type of thing a state government in a hurting economy wants to get within 10 miles of.
No venture capitalists would touch Shilling’s video game project with a barge pole; but the EDC barged right in. Just weeks after convincing the General Assembly to put aside a $125 million pot of money with which they could nurture small businesses, they shoved 60 percent of that cash into Shilling’s pipe dream. Where might Rhode Island’s unemployment rate be today if, instead of bankrolling a celebrity athlete, EDC had given out $3 million in seed money to 25 small businesses?
The August 2, 2010, edition of Politics as Usual described the deal this way:
“It is the very definition of risky – backing a company that is just now marketing its first product and has never made a dime in revenue. And that company makes video games. Unlike a new product that has a demonstrable use, there is absolutely no way to know in advance if a video game is going to be successful. You are basically betting that you can guess what 15-year-old boys are going to think is cool 18 months to two years from now. If the first couple of games flop, the company will go bust and the only assets it will have are the copyrights for video games nobody wants to buy, so there will be no way for the state to recoup its $75 mil.”
And I am no expert when it comes to money and business matters; if you don’t believe me, take a peek at my bank account sometime.
Now there is little to do but wait for the depressing denouement to play itself out.
Chafee has shown strong leadership in this mess, doing his best to salvage a deal he warned against from the very beginning – remember that when this deal was being hatched, Chafee, then a candidate for governor tried to appeal to the EDC not to do this foolish thing and they wouldn’t even let him in the door. If he wanted to, Chafee could step back from this disaster, shake his head sadly and say, “I told you so.”
But he is doing the two best things a governor could do in this situation: trying to find ways to help the company stay afloat, while at the same time making sure that not another dime of taxpayer money is thrown down this rathole. (Although if the company qualifies for tax credits, nothing can be done about that, Chafee said, though he is acting to try to make sure that state money – such as loans or, in Schilling’s case, loan guarantees – can not be used to leverage more state money.)
That the EDC does not already have a hard and fast rule that prevents a company to use its state handout to get more state handouts provides all the proof you should need of what a feeble joke that agency is.
So where do things stand today? Nobody really knows for sure, but someone should check Schilling’s sock to see if he is bleeding red ink onto it.
There are reports that, along with being nearly three weeks late on its May 1 loan payment to the state, 38 Studios did not meet its payroll last week. Not good signs.
And if Schilling has been unsuccessful attracting private investors so far, the farce that played out at the end of the week — where company officials said they would make their payment, then came down with a check but said don’t cash it, then put together a piecemeal payment Friday with most of the money wired to the state, supplemented with someone’s personal check, no one is saying whose – pretty much put an end to that notion altogether.
There are 75 million reasons why every Rhode Islander should be rooting for Schilling right now as if this were the ninth inning in the seventh game of the World Series. (Unfortunately, the bases are loaded with nobody out.)

n Woonsocket Mayor Leo Fontaine and the City Council are preparing to run up the white flag this week and officially ask for a state budget commission.
Is this a good idea or not? Was it necessary? Could certain people have stopped it but didn’t, at least until it was too late? Those are questions that voters will answer in the next mayoral election.
There has been a whiff of politics around the legislation to allow the city to impose a 13 percent supplemental tax on property and vehicles since it was introduced in the General Assembly. Everybody I talked to – NONE of whom wanted to be named – said the enabling legislation for the tax was a pawn of local politics. People who wouldn’t be able to find Woonsocket if you put them on Route 146 North were saying authoritatively that mayoral politics saturated the supplemental tax measure.
The conventional wisdom is that Rep. Lisa Baldelli-Hunt looks in the mirror and sees the next mayor of Woonsocket staring back at her. Did she and her political ally, Rep. Jon Brien, play chicken with the legislation, not officially coming on board until what now appears to be a little bit after the last minute? Did they mess up, or did they get it just right, assuming that you buy the conventional wisdom? Woonsocket’s third House member, Rep. Robert Phillips, supported the bill early on, but he also joined Baldelli-Hunt, Brien and Sen. Marc Cote in signing a letter to Fontaine suggesting that receivership would be a better route for the city to go.
The House Speaker’s spokesman, Larry Berman said, out loud and on the record, that the only reason the House Finance Committee did not vote the bill out at its May 14 hearing is that no Woonsocket legislators spoke in favor of the bill at that hearing, and the panel didn’t want to vote it out if local lawmakers didn’t support it. On the other hand, if legislative leaders and the finance committee members read our sister paper, The Woonsocket Call, they would have known that both Baldelli-Hunt and Brien had been on the record for at least a week supporting the measure, albeit half-heartedly. I’m just sayin’. Maybe you guys should buy a subscription.
If the committee had voted on that bill at the May 14 meeting, it would be law right now. It would have gone to the floor and been approved on May 15 or 16, and the governor could have signed it immediately.
Instead, the committee has to meet again for a vote this week, so the earliest it could be signed into law is Wednesday or Thursday, which city officials now say is too late. Are they saying that to make Baldelli-Hunt and Brien look bad; that their stalling saddled the city with a state budget commission that could have been avoided?
It is said that the scariest 10 words in the English language are: “I’m from the government and I’m here to help you.” If you don’t believe that, then wait until you see a budget commission in action or, even worse, a receiver.

Jim Baron covers politics and the statehouse in Rhode Island for the Rhode Island Media Group and his views are his own. He can be reached at

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