R.I. Sen. Algiere says legislators never got chance to debate $75-million loan guarantee for Curt Schilling's 38 Studios

As fallout from the 38 Studios affair continues to rain down on Rhode Island, the finger pointing and questions of who knew what when are springing up like dandelions.

In a May 23 letter to the editor in The Westerly Sun, Harriet Lloyd, executive director of the Rhode Island Statewide Coalition, said it was "disingenuous" for South County legislators Sen. Dennis Algiere and Rep. Donna Walsh to voice dismay over the $75-million loan guarantee that went to Curt Schilling’s company since they voted for the approving legislation in 2010.

"The source of the 38 Studios disaster lies in 2010 legislation they ... supported that enabled the EDC to spend taxpayer monies of monumental proportions without approval of voters," she wrote.

Her remark provoked a rebuttal letter the following day from Algiere, Walsh and three other Westerly and Charlestown lawmakers -- Representatives Samuel A. Azzinaro and Brian P. Kennedy, and Sen. Francis T. Maher. Together the Democrat and Republican lawmakers wrote:  "The legislature was never given the opportunity to debate or vote on loaning $75 million to 38 Studios."

In light of some of the vitriolic reactions to the company’s now precarious existence, we thought it timely to look at the accuracy of the legislators’ statement.

Here are the facts:

As The Providence Journal chronicled in a Nov. 7, 2010, story, the 38 Studios deal was cloaked in secrecy from the start.

In March of that year, then-Gov. Donald Carcieri attended a fundraiser for a World War II documentary at Schilling’s home in Medfield, Mass. Besides the documentary, the two talked business. Carcieri suggested the former Red Sox pitcher bring his new start-up video game company  to Providence.

During the next several weeks, Schilling and his team met privately with Carcieri’s top aides; Keith Stokes, the newly appointed executive director of the Economic Development Corporation; and House Speaker Gordon D. Fox. Schilling was interested in what funding the EDC could offer him.

What emerged from those discussions was an arrangement that would bring the expanding company and the promise of 450 jobs to Rhode Island in return for the state guaranteeing $75 million in loans to the company.

During the 2010 legislative session, with banks still not lending money in the aftermath of the housing collapse, Smith Hill lawmakers were already receptive to an EDC proposal for a $50-million revolving loan guarantee fund for small businesses.

But what House leaders attached to the state supplemental budget that April for lawmaker consideration -- and what eventually came before them as a separate bill -- was a $125-million proposal. It had a name: the Job Creation Guaranty Program.

The added $75 million in loan guarantees was precisely the amount Schilling had told state leaders in private he needed in capital, Stokes told The Journal in 2010. The name of the company was not included in the legislation and rank-and-file members in the House or Senate were not told that 38 Studios or any other specific company would be getting a big chunk of the pot, several lawmakers told the newspaper.

In their letter to The Sun last week, Algiere and his colleagues said: "When we voted in favor of the Job Creation Guaranty program nothing in the budget article or in the act that passed specifically referenced 38 Studios. Our ‘yea’ votes were cast with the understanding that many small businesses around the state would have access to the $125 million loan program."

In a telephone interview, Algiere raised a good question: would the loan program actually have passed unanimously in the Senate and with only one opponent in the House "if we knew $75 million could be going to one entity? I doubt it. That’s a high risk, start-up company."

The legislation’s lone dissenter, Rep. Robert Watson,  R-East Greenwich, said in a phone interview that he smelled  a "scandal waiting to happen" behind all the secrecy.

"38 Studios was never mentioned on the floor as a subject or even a concept," said Watson, "but I got up and railed against [the legislation] just as a generic principle because I feared there was something afoot. Programs that start out as $50 million and balloon to $125 million in a week’s notice, well, there is something up. Someone was going to get it."

A videotape of the hearing on the bill supports Watson’s claim.

Our ruling

Algiere and his fellow legislators from Westerly and Charlestown say the legislature was never given the opportunity to debate or vote on loaning $75 million to 38 Studios.

While the legislature did overwhelmingly approve the $125-million loan guarantee fund, it’s clear from news stories at the time and afterward, and from the tape of the debate, that rank-and-file legislators did not know when they voted that $75 million was meant for 38 Studios, even if some of their leaders did.

Whether they should have been more skeptical of the loan guarantee fund is another question.

We rule the legislators’ statement True

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