Should RI default on the 38 Studios bonds? A debate at noon
June 27th, 2012 at 9:40 am by Ted Nesi under Nesi's Notes, On the Main Site
The Stephen Hopkins Center for Civil Rights will hold a panel Wednesday at noon at The Old Statehouse (150 Benefit St., Providence) to discuss something that has been largely off the table in the state so far – whether Rhode Island should default on the moral obligation bonds it sold to benefit 38 Studios.
Revenue Director Rosemary Booth Gallogly criticized that idea on Newsmakers earlier this month, saying the state can’t afford to risk its bond rating even though the 38 Studios bonds aren’t general obligation bonds. The panel will hear a countervailing view from Bloomberg View’s Josh Barro, who previews his thinking today:
Performing on the 38 Studios guarantee will cost nearly $100 million, a nontrivial amount in a state with just more than a million residents. Rhode Island lawmakers owe taxpayers an explanation of why the state issues moral-obligation bonds. If the answer is in order to preserve the option of default, they should provide guidance as to what kind of circumstances would lead the state to consider defaulting — and how that guidance relates to 38 Studios.
If the answer is that the state uses moral obligations to create general obligations, lawmakers should admit that’s an invalid reason, and stop issuing moral-obligation bonds.
Joining Barro on the panel are former R.I. Supreme Court Justice Robert Flanders and Roger Williams University Law Professor John Chung. The Hopkins Center is a libertarian legal-aid group organized last year that has taken a number of stands, including siding with Governor Chafee in the dispute over Jason Pleau.
• Related: Josh Barro: Rhode Island should default on 38 Studios bonds (May 29)
Tags: 38 studios, bonds, john chung, josh barro, robert flanders
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
Rhode Island is stuck to pay the bondholders the full amount. Who needs to make restitution to the state is every elected offical who voted to approve this bill and the members of the EDC who voted yes on to give 38 Studios funds. After they make restitution they should be proscuted and never allowed to handle government funds.
The unions are going to LOVE this. Moral obligations?? In RI??
Oreo, as I contemplate living without a raise for 10 years (retired Prov fire captain) I do find this debate very interesting. So the bankers will get bailed out again. While the middle class pay? I don’t know what happened to this country. P.S. Ted the word out on the street is there are a group of retiree’s planing on suing the city. You may want to look into that story.
Steve you and your comrades have been overpaid and you and your union brethern were stupid enough to believe what the union leadership and elected officals stated. The compounding COLA’s can never be honored because they will take all the tax money for pensisions.
I’ve been saying from the beginning that RI should default on the bonds (although I would suggest that 20-30% is a decent compromise). It’s true that the likely effect would be a credit hit and higher interest rates going forward, but that would, I assume, be more focused on new unauthorized bond issues than for authorized ones (I prefer that terminology to “moral/general” as it gets to the heart of the issue), the use of which we should be curtailing anyway*. In fact, if the state were to pay back the so-called moral bonds at a discount, it would improve the state’s fiscal outlook considerably, leading to a lower likelihood of general default, and the state would be better able to provide basic services and infrastructure improvements, leading to better overall economic prospects going forward. So, counter to what the critics say, this could do a lot to improve our long-term credit worthiness.
*Voters in this state approve nearly every bond proposal put forward, regardless of the merits, so I can’t see why the state thinks it is so important to bypass the constitutional approval process to go into more debt.