Although he is not in the position to make changes – those being up to the governor and the Economic Development Corporation – in an interview Friday, Senator Jack Reed responded to questions about 38 Studios and what measures the state should take to minimize its exposure to the loss of $100 million.
Reed said the first thing to do is “to see where we stand,” and, as Gov. Chafee has called for, he favors an audit that would show where money loaned by the state has been spent as well as income generated and investments outside the state loans.
“I can’t prejudge it,” Reed said of conditions as they now stand.
“Do an audit,” he said, “minimize the state’s exposure and that’s the way to move forward.”
As it now stands, however, he said the state “is operating in an area were we don’t know all the details.” He said there are underlying assets, including intellectual properties for video games developed by the company started by Red Sox player Curt Schilling.
But, in lieu of a balance sheet and rundown on options where the company can go now and where there are the chances of the state not having to cover the loans, Reed said, “people are upset” with the loss of nearly 300 Rhode Island jobs as well as the money.
“This is a major economic initiative that seems to have evaporated,” Reed said.
The first public indication that 38 Studios was in financial straights came to light when the company failed to make a $1.12 million loan payment on May 1. That prompted the state to reconsider whether to issue film tax credits that the company planned to sell to finance the development of its newest game. While 38 Studios eventually made payments on May 18, the state didn’t come through with the tax credits and the company laid off people here as well as another 100 out of state.
Last week, in a disparaging interview with the Providence Journal, the former baseball star blamed the state for not following through on its commitment for the tax credits, and the governor for scaring off potential investors who would have brought in more cash.
As a candidate for governor, Chafee was critical of the $75 million loan guarantee engineered by his predecessor, Gov. Donald Carcieri and the EDC. House Speaker Gordon Fox also played a role in the deal.
Schilling says he has committed $38 million of his cash and another $12 million in loan guarantees to his company.
Chafee has defended his own statements, adding that investors measure risk by potential gains and not the opinions of government officials. He opposes the use of tax credits as collateral for a loan from Bank Rhode Island, which according to Saturday’s Journal, was done by tax credit broker Michael Corso. The loan was further secured by an agreement with Schilling’s pledging his gold coin collection, valued at $5.5 million.
Reed said the decision to take $75 million of the $125 million EDC loan guarantee program for one company raises serious questions, as does why the state picked such a risky venture to back.
“Get the facts on the table and minimize the impact,” said Reed.