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RI House abruptly halts budget debate

David Klepper, Associated Press

PROVIDENCE, R.I. (AP) -- Rhode Island House members abruptly left the Statehouse early Wednesday without approving a budget following a late-night debate focusing on whether the state should pay the debts from its failed gamble on Curt Schilling's 38 Studios.

The House had hoped to pass the $8.2 billion budget proposal but House Speaker Gordon Fox called a recess until 2 p.m. Wednesday after 10 hours of often acrimonious debate. The unexpected end came after rank-and-file lawmakers disrupted the budget by rejecting a proposal from legislative leaders to skip a $12.9 million contribution to the state's pension system.

Many lawmakers said they couldn't support underfunding the pension system while being asked to set aside money for the failed investment in Schilling's video game company.

Top lawmakers found themselves on the defensive when several lawmakers strenuously argued in favor of defaulting on the 38 Studios debt. An amendment that would have blocked a $2.5 million payment failed 20-54 moments before a frazzled Fox called for the recess.

"We'll have time to think about things," said the Providence Democrat before he sent lawmakers home. "It's 1:30 in the morning. Nothing good happens after 1:30, my father told me."

Calls to default on the debt have grown as more and more lawmakers say taxpayers shouldn't have to pay for the mistakes of Rhode Island's Economic Development Corp., which approved the loan guarantee in 2010 for the untested company in an attempt to create high-paying jobs.

But Gov. Lincoln Chafee and top legislative leaders, echoing warnings from bond experts, have cautioned that defaulting would have disastrous consequences for the state's bond rating and significantly increase the cost of borrowing for roads, bridges, university buildings and other projects.

The collapse of 38 Studios put the state on the hook for $112 million, including interest, with $90 million in outstanding payments. After the initial $2.5 million payment next year, the state plans to make annual payments of $12.5 million.

If Rhode Island willingly defaults, bond experts say it will be the first time a state has taken such an action since former Confederate states did so following the Civil War.

The debate has muddled deliberations as the General Assembly works to pass a budget before the new fiscal year begins July 1.

The discussion turned colorful Wednesday morning, with Rep. Charlene Lima, D-Cranston, telling House Oversight Chairman Michael Marcelo, D-Scituate, to "grow some" and call hearings on whether bond holders are rightfully owed the money. Lima argues that dire predictions about default are overblown.

"A vote for this budget is a vote for 38 studios," Lima said, before her effort to force a default failed. "We don't have the money and we should not be paying these people."

Marcello pleaded with his colleagues to pay the debt, saying that while 38 Studios was a bad investment, defaulting could inflict significant damage on the state.

"I'm angry that we are here. I wish it had never happened," Marcello said when pleading with his colleagues to pay the debt. "But we are. And you have to play the cards that you've been dealt. It's not popular. But I'm not sent here to do the popular thing. I'm here to do the right thing."

Even if the payment is approved, the question of default is likely to return next year when lawmakers will have to consider another 38 Studios debt payment.

Earlier in the debate, lawmakers rejected a provision in the budget that would have skipped a planned $12.9 million pension system contribution. That proposal failed narrowly, and created a $12.9 million gap that must be filled to balance the budget. Lawmakers could reconsider that decision Wednesday afternoon, or cut money from elsewhere.

The budget proposal includes no significant tax or fee hikes. It would increase funding for public schools and higher education by $40 million, sets aside $4.5 million for workforce development, authorizes $35 million in tax credits for historic redevelopment and eliminates sales taxes on artistic works.

In a victory for residents in the East Bay, the budget also delays plans for a toll on the new Sakonnet River Bridge until April. Residents and businesses complain that the toll would be a burden and hurt tourism. The new plan is to delay tolls until April, giving lawmakers time to find an alternative source of revenue for bridge maintenance.

The toll was expected to start next month.

"My constituents worked wicked hard for this," said Rep. John Edwards, D-Tiverton. "This would be a big Jersey barrier on the highway, telling people to go to the Cape."

The potential delay disturbed state transportation officials, who warned that blocking the tolls could prompt higher tolls on the Newport Bridge or a new toll on the Mount Hope Bridge.