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Rhode Island considering defaulting on 38 Studios debt

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Rhode Island legislators are considering a proposal that would have the state default on the debt it owes as a result of 38 Studios' collapse last spring, AP reports.

The Rhode Island Economic Development Corporation gave 38 Studios a $75 million loan in 2010 in an agreement under which the game developer would create 450 jobs over the subsequent three years. But the studio failed to make its first payment on the loan last May, and during the next month laid off its entire staff before declaring bankruptcy.

That left the state of Rhode Island on the hook for approximately $100 million, and Gov. Lincoln Chafee's current budget plans for a $2.5 million payment this year and annual payments of $12.5 million thereafter. Chafee opposes the new proposal because he believes the state should be responsible for its debts. The Economic Development Corporation agrees — according to chief of staff John Pagliarini, defaulting on the debt could harm the state's bond rating and make it more difficult to finance future projects. According to AP, the plan is unlikely to win much support in the state legislature.

But the default proposal does have backers, including state representative Karen MacBeth, who told the state House of Representatives' Finance Committee, "The state of Rhode Island cannot afford to put this burden on the backs of the taxpayers." MacBeth suggests the insurance company that underwrote the loan should pay instead.

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