The Rhode Island Commerce Corp. (formerly known as the Economic Development Corporation), whose responsibilities include providing new and existing businesses with the resources they need to grow, gave 38 Studios a $75 million loan guarantee in 2010 to relocate from Massachusetts to Rhode Island. 38 Studios promised to bring 450 jobs to the state by the end of 2012. The business took a turn for the worse in early 2012 and eventually filed for bankruptcy, leaving the state out of pocket by more than $90 million related to the transaction.
The bill, introduced on Thursday by Democratic Rep. Karen MacBeth, would prohibit the state's Commerce Corp. from making payments related to the $75 million loan guarantee. One of the arguments being made in favor of the loan default is that taxpayers should not have to pay for the bad investment the state made in 38 Studios. However, Gov. Lincoln Chafee says that a default would harm the state's financial reputation and increase borrowing costs.
This is not the first time state representatives have proposed a loan default on the 38 Studios investment. In April 2013, a similar proposal was brought forward, but was not passed. "The state of Rhode Island cannot afford to put this burden on the backs of the taxpayers," MacBeth told the state House of Representatives' Finance Committee at the time. She suggested the insurance company that underwrote the loan should pay instead.