Chafee blasts GOP gubernatorial hopefuls over 38 Studios debt

PROVIDENCE, R.I. – Gov. Lincoln Chafee on Tuesday harshly criticized two Republican gubernatorial candidates who say the state should walk away from the 38 Studios debt, calling them "unfit" for the office.

The Democrat said paying the debt stemming from the bankruptcy of Curt Schilling's video game company is necessary for Rhode Island to continue its economic recovery and potentially recoup some of the losses through a lawsuit.

"The candidates who can't understand these two obvious truths are unfit to be governor," he said in a statement.

Cranston Mayor Allan Fung and businessman Ken Block, who are seeking the GOP nomination, said Monday the state shouldn't pay.

Chafee called the two candidates' push to default disheartening and accused them of pandering to primary voters.

"We hear from them populist rhetoric that lacks any empirical research or credible support," the governor said.

A state-commissioned analysis by SJ Advisors, released Friday, predicted Rhode Island's bond rating would sink to junk status if the state defaults. The report said ratings agencies would downgrade the state's debt, raising future borrowing costs, and that the business climate could be harmed.

Fung on Monday contended that the report offered "alarmist conclusions," which he called speculative. Block said the state should halt the payments.

"38 Studios was a bad deal and a bad investment from the very beginning and now Rhode Island taxpayers are being asked to take the hit for bondholders who should have known better," he said in a statement.

Chafee noted that he himself was a vocal critic of the original deal under which the former Red Sox player's startup got a $75 million loan, financed with moral obligation bonds, for which there is no legal repayment requirement. But he added, "Common sense dictates that you pay your debts, however distasteful."

Some in the Legislature are also pushing for default on the $87 million the state remains responsible for. The House Oversight Committee is continuing to hear testimony on the issue this week, and lawmakers will soon have to consider whether to approve the next $12 million bond payment.

The Democratic candidates for governor -- Treasurer Gina Raimondo, Providence Mayor Angel Taveras and former Obama administration official Clay Pell -- support making the payments.

The state's economic development agency is suing Schilling and others over 38 Studios' collapse, saying its board was misled into guaranteeing the loan.