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RI needs to pay 38 Studios debt in light of economic consequences, says governor

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Rhode Island governor Lincoln Chafee defended the necessity of paying 38 Studios' debt in order for the state to continue its recovery from the recession and recoup taxpayer money.

Chafee's stance aligns with a report from SJ Advisors earlier this month suggesting the state of Rhode Island would face a reduction in its bond rating to junk status if it stopped paying the outstanding balance on the failed loan guarantee to developer 38 Studios.

"The candidates who can't understand these two obvious truths are unfit to be Governor," he said in a statement this week. "The consequences of default would place Rhode Island as one of the lowest state bond ratings in the nation, and the industry would reduce Rhode Island to ‘junk bond' status. We have been told in no uncertain terms that the reaction to not paying our debt obligations will be severe and have an adverse impact on Rhode Island. In addition, failure to honor our obligations could have harmful effects on the pending lawsuit."

According to the governor, a default could undo the work done to recover from the economic downturn in 2008. Rhode Island is currently approaching economic development by paying dividends.

"From the beginning, I have been the most vocal and strongest opponent of the 38 Studios deal. In the summer of 2010, I was denied access to a Rhode Island Economic Development Corporation (now called Commerce RI) meeting where I hoped to speak and state the case on behalf of Rhode Islanders on why this was a bad investment," he continued.

Rhode Island and The Rhode Island Economic Development Corporation (now known as the Rhode Island Commerce Corporation) backed the loan guarantee in 2010. Its intent was to bring the developer of Kingdoms of Amalur: Reckoning and the unreleased massively multiplayer online role-playing game Project Copernicus and 450 jobs to the state. Former Red Sox pitcher Curt Schilling's development studio declared bankruptcy in June 2012. The state filed suit later that year maintaining that it those involved in approving the loan guarantee did not disclose all associated risks.

The bankruptcy and failure of the loan guarantee did not absolve the state from honoring its debt obligations. Since its failure, state lawmakers have discussed defaulting. The newly appointed charwoman of the Rhode Island House Committee on Oversight, Rep. Karen MacBeth, proposed legislation in 2013 and in 2014 that would prevent the state from continuing to make payments.

You can follow along with the continuing story of 38 Studios' loan guarantee in Polygon's StoryStream.