job creation guaranty program
By Ted Nesi and Tim White
PROVIDENCE, R.I. (WPRI) – House Speaker Gordon Fox on Friday denied that he pushed lawmakers to create a new $125 million loan program in 2010 knowing the R.I. Economic Development Corporation planned to pledge $75 million of the money to Curt Schilling’s 38 Studios.
In his first extended broadcast interview since 38 Studios’ demise, Fox told WPRI 12 about an April meeting where Schilling and Tom Zaccagnino, a 38 Studios board member, asked Gov. Lincoln Chafee to sign two consent agreements, one allowing the company to get tax credits and another to provide bridge financing.
Fox didn’t rule out the possibility that Rhode Island will opt to default on the $75 million moral-obligation bonds the EDC issued for 38 Studios, which are not legal obligations of the state and could require lawmakers to appropriate more than $12 million a year for bondholders through 2020.
38 Studios missed the $1.125 million payment to the EDC on May 1, technically putting it into default and making it ineligible for state tax credits. After trying to pay with a bad check May 17, 38 Studios made good the next day by cutting a check for $100,000 and wiring the rest of the money.
That money didn’t go to the investors who bought $75 million in taxpayer-backed bonds the EDC issued for 38 Studios, however; it was an “annual guaranty fee,” equal to 1.5% of the average amount of outstanding bonds, that 38 Studios owed the EDC itself under the terms of the 2010 loan deal.
EDC spokeswoman Judy Chong told WPRI.com the quasi-public agency split the $1.125 million into two pots. Under the 2010 law that created the $125 million Job Creation Guaranty Program, half the money was required to go into “a reserve fund from which shall be charged any and all expenses of the [EDC] with respect to guarantee or bond obligations of the [EDC] pursuant to these resolutions resulting from a program borrower’s default.”
Chong said the EDC is still weighing what to do with the other half of 38 Studios’ $1.125 million payment. ”The use of the other half has not been determined,” she said in email. “It could go toward payment of fees (such as legal fees).”
• Related: 38 Studios owed EDC money on May 1; did Schilling firm pay? (May 15)
The average Rhode Islander would probably say 38 Studios has been lobbying Rhode Island political leaders, in light of multiple confirmed meetings and the company’s success in getting a $75 million taxpayer-guaranteed loan.
Secretary of State A. Ralph Mollis, however, takes a different view. His office says the company is under no legal obligation to register as an organization with business before the government.
“State law defines lobbying as influencing action on legislation by the General Assembly or the governor or on policy-making by the executive branch,” Mollis spokesman Chris Barnett told WPRI.com. “We have received no evidence or allegations of any such activities by 38 Studios that would trigger the requirement to register.”
38 Studios apparently agrees. The company has never registered anyone to lobby at the Rhode Island State House, even though Carcieri and Chafee administration officials, as well as House Speaker Gordon Fox, have all acknowledged meeting with Curt Schilling and other company representatives to discuss its plans.
Rhode Island gave Curt Schilling a $75 million loan guarantee primarily to lure his company 38 Studios to Providence. But enlisting the former Red Sox ace as a one-man spokesman could prove pretty valuable, too.
Schilling sang the praises of Rhode Island and its leaders in a prime-time interview with Fox News host Sean Hannity last week, defending his acceptance of the taxpayer backstop and offering a description of the state’s business climate that must have been music to Smith Hill’s ears.
“The growth of our company, 38 Studios, is government doing – gone right,” Schilling told Hannity (who lived in Rhode Island before he went into broadcasting and described 38 Studios as “a huge business”).
Schilling continued: ”I watched the speaker of the House, who is a Democrat in Rhode Island, adamantly push to create this job guaranty program, this job creation program, along with Republicans and independents, to do right by the people. When you have politicians – I don’t care which side of the aisle you’re on – working for the better of the people, of their constituents, good things happen when you have people with pure motives.”
“I lived in Rhode Island for five years,” Hannity interjected. “They have a million warehouses. It’s all textile warehouses. They are available.”
38 Studios has collected more than half the cash available from the $75 million taxpayer-guaranteed loan the Rhode Island Economic Development Corporation took out to get the company to move to Providence.
The video game company founded by former Red Sox pitcher Curt Schilling received a $17.2 million payment on April 18, six days after its employees started working out of the company’s new downtown headquarters, EDC spokeswoman Melissa Chambers told WPRI.com.
38 Studios has received a total of $39.6 million, or 53 percent of the loan money, in three installments since last fall. The first payment of $13 million was handed over when the loan transaction closed on Nov. 3, and the second payment of $9.4 million arrived after the company chose its future home in Providence.
This month, 38 Studios moved its local studio from Maynard, Mass., to the six-story, 104,316-square-foot One Empire Plaza building, which has been vacant since Blue Cross & Blue Shield of Rhode Island moved into its new headquarters. The gaming company has a second studio in Maryland for its Big Huge Games subsidiary.
38 Studios’ next payout will be for $4.2 million, which it can obtain once it has 125 full-time employees in Rhode Island, according to bond documents reviewed by WPRI.com. The company has promised to employ 450 people in the state by late 2013.
38 Studios is tentatively scheduled to have all but $11 million of the loan’s proceeds by the end of this year. It cannot receive the last chunk of money until it pays off the rest of the loan, which is supposed to happen by November 2020.
If 38 Studios doesn’t have enough cash to cover its loan payments, the governor is required to ask the General Assembly to provide taxpayer money to make investors whole.
The 38 Studios agreement was strongly backed by former Gov. Don Carcieri and just as staunchly opposed by his successor, Lincoln Chafee. Now that the loan is a done deal, the new governor says he wants 38 Studios to succeed – and hopes to attend its ribbon-cutting ceremony in Providence.
Authorization for the loan was provided by a new $125 million Job Creation Guaranty Program that lawmakers created last year partly to benefit 38 Studios. This week, Chafee got the EDC’s board to change the program’s rules to cap the size of future loans at $10 million – $65 million less than 38 Studios got – and make more money available to small businesses.
38 Studios is developing two games. The first one, “Kingdoms of Amalur: Reckoning,” is being created by its Maryland-based subsidiary. Electronic Arts is scheduled to release the $60 game for Playstation 3, Xbox 360 and PCs sometime next year.
The company’s second one, a massively multiplayer online game called Project Copernicus, is being developed in Providence. At the time the loan transaction closed, Copernicus was slated to be released in September 2012.