By Ted Nesi

PROVIDENCE, R.I. (WPRI) – House Democrats led by Speaker Gordon Fox on Thursday proposed a complete overhaul of the state economic agencies as they unveiled a sweeping set of bills they say will “improve the coordination and quality” of Rhode Island’s troubled economy.

The Democrats’ other proposals include bringing back the tax credit for historic buildings, this time capped at $5 million per project and potentially $30 million in total; allowing employers to pay workers biweekly; considering curbs on the overuse of jobless benefits by seasonal employers; and creating a new tax credit for local employers who add jobs after making major capital investments.

Read the rest of this story »

By Dan McGowan

Gov. Lincoln Chafee’s nominee to head up the Economic Development Corporation may be a blast from the past, but Marcel Valois has made it pretty clear that the quasi-public agency is in need of major changes.

In an op-ed published last year in the Providence Journal, Valois and former Rhode Island Public Expenditure Council executive director Gary Sasse argued that the state’s economic development strategy “should be changed from a government-dominated, reactionary model to one that operates within a strategic network of committed, innovative, collaborative and agile stakeholders from all sectors.”

Here’s their pitch:

To reboot the Ocean State’s economic development, a new public/private economic-development process should be built on the following organizational framework:

• Create an Office of Strategic Development and Economic Policy within the governor’s office, using existing resources. This office would help set a vision and strategic direction for economic-development activities. It would also work with other state agencies to ensure that economic-development-related functions are effectively coordinated and to reinforce statewide economic strategies and programs. This office would help make sure that all state agencies are rowing in the same direction.

• Establish an independent, university-based professional economic-research collaborative to provide decision makers with real-time economic data and analysis needed in making evidence-based decisions. The collaborative would collect and aggregate critical economic data create dashboard indicators measure specific trends, develop performance metrics, conduct cost/benefit analyses for major state investments and market based reality checks. The mission of the collaborative would be provide invaluable insight and foresight necessary for formulating effective economic-development policies.

• Transform the current EDC in to a public/private Economic Resource and Management Investment Board. This new board would have the responsibility invest state economic-development resources into public/private initiatives in the areas of (1 marketing, reputation management, and customer-relationship management, (2) restructuring public-finance programs to better leverage private capital through public and private collaboration and professional financial management, including underwriting and oversight, (3) investing new business expansion strategies and value-added services and measuring the return on those investments.

Read the whole piece here.

As you may have heard, Governor Chafee opposed the 38 Studios deal.

After Curt Schilling’s game company collapsed into bankruptcy last spring, Chafee asked for the resignations of every R.I. Economic Development Corporation board member who voted in 2010 to approve the company’s $75 million taxpayer-guaranteed loan.

Nearly all the members complied in one way or another, with one noteworthy exception: George Nee, president of the Rhode Island AFL-CIO and the leading voice of organized labor in the state. Nee didn’t resign and continued to attend board meetings despite Chafee’s request.

And on Thursday it was Nee – not Chafee – who got the last word: the governor just nominated the union leader for another term on the struggling board, along with four other new members.

(more…)

By Ted Nesi and Carl Sisson

PROVIDENCE, R.I. (WPRI) – The troubled R.I. Economic Development Corporation is losing three more board members less than a year after its taxpayer-guaranteed loan to Curt Schilling’s 38 Studios fell apart.

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​By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Rhode Island’s economy is being held back by problems that include relatively high taxes, a maze of regulations, too many dropouts and a lack of funding for startups, according to a new study commissioned by the Chafee administration.

Read the rest of this story »

• Related: Read the full Fourth Economy Consulting study of Rhode Island (PDF)

Governor Chafee decided to tap veteran R.I. Economic Development Corporation staffer William Parsons as its new executive director despite Parsons’ involvement in a 1999 scandal over executive expense accounts.

Parsons was reprimanded and demoted from deputy director to associate director after he approved – perhaps inadvertently – the EDC’s purchase of a plane ticket to Disney World for the son of its legal counsel, who wound up resigning along with other top staff members, according to newspaper accounts.

Parsons was also criticized for taking a $300 cash advance off his EDC credit card, charging $19.77 at a Family Pet Center in North Providence and failing to reimburse the agency for $390 he spent to bring his wife on a trade mission to London.

Christine Hunsinger, a spokeswoman for Governor Chafee, said Friday the governor was aware of the expense irregularities but decided it wasn’t a reason to pass over Parsons, who has worked for the EDC and its forerunner since 1975, a year after former Gov. Philip Noel created it.

“Yes, there was an issue several years back and that was dealt with, and since that time his track record has been impeccable,” Hunsinger told WPRI.com. “The governor is confident that Bill Parsons is the right person because of the institutional knowledge he has in 37 years of public service. EDC will move forward and under the governor’s direction will be a force in driving economic development in the state.”

Hunsinger declined to say how many others Chafee approached about taking the job. She also said the governor called Senate President M. Teresa Paiva Weed to inform her of the choice. Parsons’ appointment must be confirmed by the Senate.

By Ted Nesi and Tim White

PROVIDENCE, R.I. (WPRI) – Rhode Island officials say they did extensive due diligence before awarding a $75 million taxpayer-guaranteed loan to Curt Schilling’s doomed video game company, but documents obtained by Target 12 suggest the process was rushed and shortcuts were taken.

Officials began drafting the terms of the 38 Studios deal as early as March 26, 2010, more than two months before state lawmakers even created the new $125 million loan-guarantee program that was used to lure Schilling’s company to Rhode Island in July, according to more than 2,500 pages of emails, financial documents and internal memos the EDC provided in response to Target 12′s public records request.

Read the rest of this story »

When Governor Chafee convened a group of business leaders on Thursday to discuss his approach to economic development, one of the documents he gave them was a 2010 study [pdf] on the subject by Jeffrey Thompson, an economist at UMass Amherst’s Political Economy Research Institute.

Back when the study was first published, Thompson gave an interview about it to The Real News Network, a left-leaning alternative media outlet that broadcasts online. This video will help you understanding the economic thinking of the man who has the ear of Rhode Island’s governor:

• Related: Chafee sees progress, sets guidelines for fixing RI economy (Oct. 11)

Governor Chafee convened a meeting of business leaders and influential policy wonks at the R.I. Economic Development Corporation on Thursday afternoon to share his vision for fixing economic development in Rhode Island post-38 Studios.

Chafee’s message was twofold: I’m hard at work on economic development, and I want your support for my ideas. The governor clearly hopes to have the nine influential individuals who attended pushing for the same changes moving forward.

Attending the EDC meeting with Chafee were John Simmons, head of the Rhode Island Public Expenditure Council; Bob DiMuccio, president and CEO of Amica; Jon Duffy, chairman of the Greater Providence Chamber of Commerce; Neil Steinberg, president and CEO of The Rhode Island Foundation; Gary Sasse and Marcel Valois, veteran policymakers; Ron Machtley, Bryant University’s president; Janet Raymond, senior vice president at the Providence Chamber; and George Nee, president of the Rhode Island AFL-CIO.

Steinberg described the meeting as “a dialogue” that was “very positive,” saying afterwards: “I think the consensus was, 75% to 80% everybody agrees on.”

(more…)

Guests: RIPEC’s John Simmons and Brown University visiting scholar Lou Mazzucchelli:

• Related: Chafee reacts coolly to study saying demote EDC (Sept. 25) | RIPEC study (PDF)

The Greater Providence Chamber of Commerce is applauding a study issued Tuesday calling for an overhaul of Rhode Island’s economic development strategy – and wants state leaders to act fast in implementing it.

Laurie White, the chamber’s president, said Governor Chafee and state lawmakers should act within the next 90 days to implement the proposals put forward by the Rhode Island Public Expenditure Council. Those include demoting and renaming the R.I. Economic Development Corporation and creating a new secretary of commerce position in the governor’s office to oversee economic strategy.

“I think it’s important that action occur quickly,” White told WPRI.com. “Our view is that economic development in Rhode Island has to be the main event. … We need a very dramatic, aggressive effort to change the path that we’re on.”

White called the RIPEC study “very well done,” saying she appreciates the amount of outreach the business-backed think tank conducted and agrees strongly with the idea that there is a lack of focus inside state government on supporting commerce in Rhode Island.

“This is an excellent foundation to launch from,” she said. “Let’s act swiftly and move quickly, but not just rearranging what we have – we’ve got to do something new and dramatic and bold, or else we’re going to get the same old same old. We don’t want these reports to become a caricature of themselves.”

Update: Charlestown Rep. Donna Walsh, co-chair of the Joint Committee on Economic Development, tells WPRI 12′s Susan Campbell that it’s “probably not possible” for lawmakers to pass new legislation by December, since a new class will be elected on Nov. 6 and an emergency session would be required. But Walsh said legislation could be drafted and pre-filed in December to be acted on the following month if there is a consensus around changes.

• Related: Demote EDC, says study ordered by Chafee after 38 Studios (Sept. 25)

An earlier version of this story misstated Laurie White’s title.

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The R.I. Economic Development Corporation would be demoted and supplanted by a new secretary of commerce who reports directly to the governor if Rhode Island officials embrace the recommendations of an independent study ordered in the aftermath of the 38 Studios debacle.

During a press conference on Tuesday, Chafee thanked RIPEC for its “terrific, hard work” in putting together the study, which involved 75 interviews with more than 100 people. But the governor didn’t embrace its findings – and left the event without listening to the presentation by John Simmons, RIPEC’s executive director.

“I’m very impressed with what has happened in the last few months down at EDC,” Chafee said. The governor later added: “We’re moving forward. … I have full confidence in what is occurring at EDC right now.”

Read the rest of this story »

• Related: Read the full RIPEC study on economic development (PDF)

Gov. Lincoln Chafee won’t consider defaulting on the 38 Studios bonds.

“I take ‘moral obligation’ to the fullest extent of those words,” Chafee told WPRI.com in a State House interview this week. “We made a moral obligation and I’m going to live up to it.”

Asked how he reconciles that with his support for last year’s pension cuts, Chafee said: “I don’t think the words were as strongly associated as the exact words ‘moral obligation.’”

“I think we – to the Rhode Island state workers, teachers, public safety employees, we want to look out for their future,” he said. “But this is selling bonds based on those words – ‘moral obligation.’”

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By Ted Nesi and Tim White

PROVIDENCE, R.I. (WPRI) – Curt Schilling’s video game company 38 Studios blew through more than $133 million before it collapsed into bankruptcy last month, according to documents newly obtained by WPRI.com.

The documents obtained by WPRI.com also raise new questions about whether 38 Studios executives were overoptimistic about the company’s prospects. Their business plan projected the company would take in $109 million in revenue over the course of this year.

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Stateline’s Jake Grovum was among the reporters who attended last week’s 38 Studios bankruptcy hearing, and today he’s out with an extended article about what went wrong. Some highlights (emphasis mine):

The state’s first error, economic development experts say, was placing so much of its economic development fund in one venture, especially a risky video game company.

“It’s the first time I’ve heard of a government giving away almost the entire store to one company,” says Anthony Figliola, the vice president of Empire Government Strategies and a familiar figure in economic development policy. “The state gave away most of its money to a start-up company. That’s alarming.” …

Since they’re moral obligation bonds, there’d be little standing for bondholders to recoup their losses should the state walk away. The wild card is the market’s reaction, and some say the backlash would be swift. “The market would treat it as tantamount to defaulting,” says Matt Fabian, managing director of Municipal Market Advisors. “They would be ostracized.”

But others say that’s overstated. With more debtors facing accumulated red ink, the market could be more forgiving. “Bondholders knew what they were getting into,” argues Craig Chilton, an adviser with BondView. “If I were a taxpayer in Rhode Island, I’d be hard-pressed to want to make good on the obligation.”

(photo: Ted Nesi/WPRI)

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Just weeks after the epic collapse of Curt Schilling’s 38 Studios, another high-profile loan guarantee to a politically company has gone sour after being approved by the R.I. Economic Development Corporation during the final year of former Gov. Donald Carcieri’s tenure.

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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.

Read the rest of this story »

By Ted Nesi

PROVIDENCE, R.I. (WPRI) - The R.I. Economic Development Corporation has hired a special counsel, Max Wistow, to examine whether taxpayers have legal avenues to claw back some of the tens of millions of dollars they’re poised to lose after the collapse of Curt Schilling’s video game company, 38 Studios.

Read the rest of this story »

The seven-figure payment that helped set in motion the rapid demise of Curt Schilling’s 38 Studios is now sitting in the R.I. Economic Development Corporation’s bank accounts.

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)

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The Chafee administration wants to know whether Rhode Island taxpayers have legal avenues to claw back some of the tens of millions of dollars they’re poised to lose after the collapse of 38 Studios.

The governor’s office is close to choosing a law firm to examine whether Rhode Island can seek damages from the professional liability insurance policies of those who worked on the $75 million loan guarantee, a person familiar with the discussions told WPRI.com on Monday evening.

Professional liability insurance, also known as errors and omissions insurance, is purchased by professionals such as lawyers and consultants to protect themselves if they’re accused of negligence. It’s different from the municipal bond insurance the EDC and 38 Studios purchased from Assured Guaranty to protect investors.

Administration officials began discussing possible legal avenues to “recover as much as possible” back on May 1, when 38 Studios defaulted on a $1.1 million payment it owed the R.I. Economic Development Corporation, the person said, adding that the governor also wants to hold people accountable.

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By Ted Nesi

PROVIDENCE, R.I. (WPRI) - Senate President M. Teresa Paiva Weed says her chamber may not take up Governor Chafee’s nominees to the troubled R.I. Economic Development Corporation board before lawmakers leave Smith Hill this week.

“I think we may have to come back,” Paiva Weed told WPRI.com. “That’s the way it’s looking.” She said the governor has been sending a significant number of appointments to the Senate in the waning days of the session.

Lawmakers are hoping to adjourn as soon as Tuesday, but confirmation hearings haven’t been scheduled for any of the six EDC nominees Chafee has put forward in the wake of the 38 Studios debacle: Marcia Blount, Pablo Rodriguez, Roland Fiore, Stephen Hardy, William Holmes and Peter Crowley.

The EDC board has 12 members in addition to the governor, who serves as chairman but only votes to break ties. The board has a number of major issues to take up in the coming months, including the runway expansion at T.F. Green Airport and dredging the port at Quonset Point.

Failure to confirm Chafee’s nominees would not necessarily cripple the EDC board, however. State law says “a majority of directors holding office shall constitute a quorum,” and that a vacancy “shall not impair the right of a quorum to exercise all of the rights and perform all of the duties of the corporation.”

As The Providence Journal first reported, Paiva Weed opted to move the EDC nominations through the Senate Judiciary Committee instead of the Senate Corporations Committee, which considered and approved his previous slate of candidates last year.

By Tim White

PROVIDENCE, R.I. (WPRI) – Some Rhode Island lawmakers are concerned a bill to push a wind energy project in the East Bay would expand the reach of the embattled R.I. Economic Development Corporation even as the agency is under fire for mismanaging the 38 Studios deal.

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By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Governor Chafee on Monday nominated three more people to the R.I. Economic Development Corporation’s board and tasked a special advisor with overseeing the quasi-public agency as it deals with the fallout from its botched $75 million loan guarantee to 38 Studios.

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WPRI 12′s own Tim White, assistant news director Karen Rezendes, producer Nick Domings and photographer John Villella took home the gold Saturday night at the 35th annual Boston/New England Emmy Awards, beating out the competition from Boston to win Outstanding Investigative Report for “Feel the Burn,” “Dirty Little Secret” and “DOT Dozer.” (Target 12 won the trophy in 2010, too.)

Congratulations as well to Rhode Island’s other winner, Providence-based advertising agency (add)ventures, which won the Outstanding Commercial Emmy for this “Knowledge Providence” spot it created for the R.I. Economic Development Corporation.

38 Studios laid off all its employees on Thursday, and in the subsequent coverage there’s been some confusion about how much cash the company actually got out of the $75 million loan Rhode Island’s EDC took out on its behalf. Here’s an outline of exactly when (and why) the EDC says it transferred the money to Curt Schilling and company.

• Nov. 2, 2010 … $10.9 million. “Upon delivery and the Date of Issuance of the Bonds AND after the date when [38 Studios], or a letter of credit bank selected by [38 Studios], presents reasonable documentary evidence to the [EDC] that the letter of credit required in connection with [38 Studios'] execution of that Lease dated Sept. 20, 2010 is to be issued subject only to the funding of a deposit account at such letter of credit.”

• Nov. 2, 2010 … $2.1 million. ”Collateralization for letter of credit that serves as the security deposit on Empire Street lease.”

(more…)

Two more largely unknown subsidiaries that 38 Studios established are not incorporated in Rhode Island, casting further doubt on whether the company is eligible for millions of dollars in tax credits it needs from the state.

In November 2009, Curt Schilling’s embattled video game company apparently incorporated two limited liability companies under Delaware law, records show: Mercury Project LLC and Precision Jobs LLC. Neither company was registered in Rhode Island.

WPRI 12 reported Wednesday evening that 38 Studios’ failure to incorporate in Rhode Island could make it ineligible for more than $8 million in state tax credits it’s seeking to avoid insolvency. The governor’s office says officials are looking into the question of 38 Studios’ corporate residency.

(more…)

Scott Kirsner, The Boston Globe’s well-sourced veteran innovation columnist, spoke with game industry executives and venture capitalists familiar with the industry to get a sense of what might happen next for 38 Studios. He came up with three main scenarios:

Scenario #1. A bigger game studio or media company comes in and offers to take the 38 Studios assets for nothing. They keep developing 38′s forthcoming game “Project Copernicus.” …

Scenario #2. Someone acquires 38 for their division in Maryland, formerly known as Big Huge Games, as well as the game that group launched earlier this year, “Kingdoms of Amalur: Reckoning.” … An acquirer in this scenario would probably get the assets related to “Copernicus,” but may or may not decide to invest in finishing that game. …

Scenario #3. … 38 eventually shuts down and files for bankruptcy, and sells its revenue-generating product, “Kingdoms of Amalur,” to another game company. Office furniture and computers get sold cheap, and it’s likely that “Copernicus” never sees the light of day.

Read the rest here. This quote that one VC gave Scott is particularly damning in view of how Governor Carcieri and Keith Stokes sold the idea locally: “You want a team that’s in a center of excellence that you can build around. Providence is a great place, but it’s just not there as far as game development.”

Additionally, check out CNET’s Jim Kerstetter explaining why the 38 Studios loan was always “tremendously risky” and lambasting Schilling for “hypocrisy on top of bad business.” And RIPR’s Ian Donnis reports that the fiasco is adding to the tension between Governor Chafee and Treasurer Raimondo.

Update: Appearing Wednesday on WPRO’s Dan Yorke program, Raimondo said she wants to avoid “politics as usual” but is pretty clearly trying to put the blame on Chafee.

“Six or eight months ago, if we had been brought in, perhaps we could have been helpful,” she said. “The time for panic was six to eight months ago.” (Six to eight months ago, of course, is when the State House was consumed by the pension debate Raimondo instigated.)

Raimondo also subtly shifted the blame from former Governor Carcieri, who pushed the deal through, to Chafee, who won office the day it was finalized. “I think the strategy here is a good strategy,” she said, referring to the EDC’s focus on innovative businesses. “What happened here was a failure of execution.”

Asked last Monday whether Raimondo’s office knew anything about what was happening with the 38 Studios deal, her spokeswoman emphasized that it was an EDC situation and that the treasurer had no involvement.

More than half the Rhode Island Economic Development Corporation board members who are now scrambling to save 38 Studios backed the $75 million loan guarantee for the company less than two years ago.

Seven of the 13 board members who took their seats during the Carcieri administration supported the former governor and his EDC executive director, Keith Stokes, when they proposed committing 60% of the loan resources in the new Job Creation Guaranty Program to Curt Schilling’s video game company.

The seven EDC directors currently serving who approved the 38 Studios deal are:

• Timothy Babineau, president and CEO of Rhode Island Hospital;
• David Dooley, president of the University of Rhode Island;
• Stephen Lane, chairman and chief venture officer of medical device firm Ximedica;
• George Nee, president of the Rhode Island AFL-CIO;
• J.L. “Lynn” Singleton, president of the Providence Performing Arts Center;
• Cheryl Watkins Snead, president and CEO of supply-chain manager Banneker Industries;
• and Dan Sullivan Jr., president and CEO of Collette Vacations.

Babineau missed the meeting and could not cast a vote, but he submitted a statement saying: “I believe that the time is now for Rhode Island and the EDC to take bold and decisive action to demonstrate its commitment to our knowledge economy. … 38 Studios presents such an opportunity. Hopefully it will be the first of many to come.”

An eighth EDC board holdover from the Carcieri administration – Karl Wadensten, president of industrial vibrator manufacturer VIBCO – was the only director who voted against approving the 38 Studios deal in 2010. The Senate voted to confirm them and Stokes in February 2010 in the wake of a critical report on the agency.

The directors serve staggered terms, with Dooley, Singleton and Snead appointed through February 2013 and Lane and Wadensten appointed through February 2014. The terms of Babineau, Nee and Sullivan expired last February, but Governor Chafee hasn’t nominated successors so they remain in place.

The Job Creation Guaranty Program authorizes the EDC board to approve up to $125 million in loan guarantees for companies with intangible assets. It now has $44.5 million available after the board approved guarantees for 38 Studios, NuLabel Technologies and The Corporate Marketplace, a spokeswoman said.

• Related: No hard feelings toward Chafee from EDC board (Nov. 3, 2010)

An earlier version of this story said Timothy Babineau voted in favor of the 38 Studios deal; Babineau missed the meeting and did not cast a vote but did submit a statement expressing support for the deal.

(photo: Sean Daly/WPRI)