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RI gov's office mulled 38 Studios payment options

David Klepper, Associated Press

PROVIDENCE, R.I. (AP) -- Gov. Lincoln Chafee's office has investigated whether Rhode Island could refinance or reduce the debt it owes for its failed investment in Curt Schilling's video game company but remains convinced the state's best option is to pay up.

Lawmakers continue to grapple with the debt as more and more favor defaulting on the money the state owes bond holders for a $75 million loan guarantee given to 38 Studios, the company started by the former Red Sox pitcher.

The issue will come to a head within weeks as lawmakers debate and vote on a state budget proposal that includes a $2.5 million bond payment. Beginning the year after, the state would make $12.5 million in annual payments.

Refinancing the debt could prove more expensive than paying it, according to Richard Licht, the Democratic governor's director of administration, because of the added costs that would be tacked on to issuing new debt. It's unlikely the state could strike a deal with the company insuring the bonds, he said, adding that the insurer will likely sue the state in the event of a default.

"We've talked to the insurer," Licht said. "They've said they expect the state to pay."

Supporters of defaulting argue the insurer will pay bond holders if the state defaults. Rep. Karen MacBeth, D-Cumberland, said she doubts a default would be as bad as Licht predicts.

"Let's not pay it for a year and see what happens," she said.

On Thursday, lawmakers heard from a bond expert who warned of potential dire consequences should the state default. Matt Fabian, managing director of Concord, Mass.-based Municipal Market Advisors, said not paying the debt could hurt Rhode Island's bond rating and make borrowing money more expensive. But Fabian said it's impossible to predict the precise impact because no state has defaulted in a similar fashion in more than a century.

With the potential impact being so speculative, Gary Sasse, a former director of administration for former Gov. Donald Carcieri, said Chafee needs to do a better job of convincing the public that defaulting is a bad idea. Carcieri, a Republican, was a leading supporter of the 38 Studios loan guarantee.

"The burden of proof is on the governor and the General Assembly," Sasse said. "The last time we made an uninformed decision like this, it was 38 Studios."

Chafee spokeswoman Christine Hunsinger said the governor will release documents from its review of a potential default. But she said attorneys will first review the documents to ensure the release doesn't impact a lawsuit filed by the EDC against Schilling and others involved in the deal.