— Phantom Finance —

November 4, 2012

The Legislation Enabling the 38 Studios Guarantee Didn't Magically Push Itself Through the Legislature

Carroll Andrew Morse

Based on some chatter in the Twittersphere over the weekend, it appears the claim is still alive and well that Rhode Island Speaker of House Gordon Fox didn't know that the state's Economic Development Corporation would consider awarding $75M in loan guarantees to a single company (that eventually went under), utilizing a $125M pool that had been authorized by the legislature during his watch.

Let's review the timeline on this.

1. Governor Donald Carcieri and the Rhode Island Economic Development Corporation, at the start of 2010, had proposed a $50M program for state-government loan guarantees to businesses in Rhode Island. Here's a description of the original program from WPRI-TV's (CBS 12) Tim White and Ted Nesi...

Carcieri and the EDC had proposed a new $50 million Job Creation Guaranty Program that would provide loan guarantees to local high-tech companies with soft assets such as intellectual property, as opposed to hard assets such as factories and equipment.
Keep the number $50M in mind.

2. According to Mike Stanton of the Projo (h/t Monique), a meeting between 38 Studios founder Curt Schilling and Governor Carcieri at a March 2010 fundraiser led to meetings with EDC Chairman Keith Stokes and Rhode Island Speaker of the House Gordon Fox...

One week later, the new executive director of Rhode Island’s Economic Development Corporation, Keith Stokes, said that both Carcieri and Fox, the House speaker, told him in separate conversations that he should meet Schilling.

On March 16, Stokes and Fox met Schilling and 38 Studios director Tom Zaccagnino at the downtown Providence law office of Michael Corso, a friend and campaign supporter of Fox’s who was working with 38 Studios, sold tax credits, and had helped rewrite Rhode Island’s historic-preservation tax credit law.

Six days later, Stokes met again with Schilling and Zaccagnino, this time with EDC officials. 38 Studios said it was looking for about $75 million, so Stokes said he went to legislative leaders and suggested they add $75 million to a planned $50-million financial credit program for companies that create “soft assets” — such as computer software and other intellectual property.

On April 6 — one month after Schilling and Carcieri first met —House Finance Chairman Steven Costantino inserted the $125-million Job Creation Guarantee Program into the supplemental budget.

Note $75M being added to an original $50M.

3. Eventually, the "Job Creation Guaranty Program" was approved by the House in May of 2010, authorizing the Economic Development Corporation to issue $125M in debt in support of "Rhode Island's economic development strateg[y] of continuing to optimize its knowledge economy assets such, as the sciences, technology, digital media, innovative manufacturing and other technologies". It was then approved by the Senate and signed by the Governor.

4. In July of 2010, Schilling's company was awarded a $75M loan guarantee by the EDC.

So was the extra $75M added to the original $50M loan guarantee program targeted for one company, right from the start, during the legislative phase of the process?

5. House Finance Committee Chairman Stephen Costantino had this to say on the subject of the loan-guarantee program, to Denise Perreault of the Providence Business News in June of 2010 -- that's before the EDC had made its decision to award 38 Studios one chunk of $75M...

Rep. Steve Costantino, chairman of the House Finance Committee and a candidate for mayor in Providence, sponsored the legislation creating the $125 million loan-guarantee program. He said he had heard that 38 Studios was interested in moving to Rhode Island, so he set the guarantee ceiling at $125 million specifically to allow other businesses to take advantage of the funding, too.
Let's work through the numbers here. Suppose Chairman Costantino thought that 38 Studios might receive an amount equal to a whole fifth of the original fund ($10M), and that wouldn't leave enough for others. If that was the case, the program could have been increased to $60M, which would have allowed it to accommodate everyone it could have prior to 38 Studios' interest, plus 38 Studios for $10M. Or suppose he thought that 38 Studios might ask for an amount up to half of the size of the original program ($25M). Then, the sensible thing would have been to increase the size of the loan guarantee fund to $75M, allowing $25M to go to one place and $50M to everyone else.

Instead, so that the program could involve both 38 Studios and "other businesses", a choice was made to increase the size of the loan guarantee program to $125M, suggesting that $75M was going someplace where all of the "other businesses" eligible for the program would not be able "to take advantage of the funding", i.e. the one business mentioned by name by Finance Chairman Costantino was expected to get the $75M.

6. Of course, the fact that the House Finance Chairman pretty clearly knew where the money was going when he spoke prior to the EDC vote doesn't automatically mean the Speaker did. Maybe Stephen Costantino had gone rogue, and was throwing numbers into the budget and making promises without consulting anyone, and Speaker Fox was too busy with other things to notice. Just keep in mind, that's as about as good a claimas there is that the Speaker didn't know the $75M spike in the Job Creation Guaranty Program ceiling wasn't intended specifically for 38 Studios.

As for supporters of Speaker Fox running in Tuesday's election, whether their better argument is "we assumed the Speaker knew where the money was going" or "we know he didn't really know where the money was going, but we voted like he told us to anyway" is not as clear.

October 18, 2012

The Insanity Will Never End, Until We At Least Begin to Think About It

Carroll Andrew Morse

RI Public Radio reporter Ian Donnis' recap of the last night's Gordon Fox/Mark Binder debate includes this gem of Rhode Island fiscal insanity...

6. [House Speaker Gordon Fox], in the first time that I heard him mention it, raised the possibility of using the state income tax to reduce the high burden of property taxes. He didn’t offer further specifics. The comment came in response to a question from a resident troubled by high property taxes on the East Side.
Think through how this would work. Speaker Fox is suggesting that a statewide tax increase (or perhaps a service cut HAHAHAHAHAHA) can be used to subsidize the property taxes of East Side residents. There's is no fiscal way that this works out unless 1) the General Assembly rigs some kind of "property tax funding formula", so that politically favored constituencies like East Siders receive money taken from less politically favored ones or 2) more money is taken from East Siders in state taxes than they get back in property tax subsidies (with the legislature hoping that nobody on the East Side notices).

Do Rhode Island legislators really believe that everyone can come out ahead, in a plan to shift money from Group A to Group B? More importantly, does the legislator you are planning to vote for this November believe it?

May 5, 2012

Speaking of John C, When Will That $75,000 Get Paid Back?

Monique Chartier

So as you probably heard, Congressman David Cicilline's brother, John, made the news yesterday.

Which reminds me. When is either John Cicilline or David Cicilline going to pay Providence back that $75,000 - or is it $150,000 (two checks @ $75,000)? Is there any question that this highly questionable maneuver would never have taken place if the person tendering the checks had not been the brother of the mayor?

Rumors have been circulating that a post in President Obama's administration for Congressman Cicilline might be arranged if polling of the First District race does not improve sufficiently for the incumbent. Looking down that road for a moment, is there any question that this matter would not come up in a vetting process or during Senate confirmation proceedings? ("Congressman, are we to understand that, during your tenure as mayor of the city, your brother stiffed Providence for $75,000 or $150,000?")

Of course, President Obama could avoid Senate scrutiny and go the czar route for bringing the congressman on board. For example, in the highly unlikely event that, in the midst of campaign season, President Obama wanted to hide just how bad the federal deficit is, Congressman Cicilline is eminently qualified to become the Czar of Freezing Out Federal Auditors And Covering Up The Egregious Budget Situation Until We're Safely Past Election Day. ("Sure, Mr. Axelrod, here's how we did it when I was mayor ...")

March 22, 2012

Note to the General Treasurer: If George Nee Supports It, It Is Definitively Not "Sound Fiscal Policy"

Monique Chartier

Kudos to WPRI for bringing this to light.

Treasurer Gina Raimondo is urging lawmakers to reject a little-noticed proposal by Governor Chafee to shave $2.6 million off the amount taxpayers must put into the pension fund next year.

The governor’s proposed 2012-13 budget would scrap a seven-year-old law mandating that if the state’s required pension contribution rate falls from one year to the next, taxpayers must put 20% of the reduction into the pension fund anyway.

Inexplicably, the General Treasurer doesn't want to scrap this financially infeasible law. She wants the state - not exactly awash in surpluses - to somehow put that 20% in anyway.

”After thoughtful analysis, Treasury concluded that the policy should remain in effect and therefore did not recommend a change to this statute,” she wrote in a letter to House Finance Committee Chairman Helio Melo obtained by WPRI.com.

As Treasury's analysis does not specify where the money would come from, it's not clear how "thoughtful" the analysis could be. The Governor's office noticed this absence of source, too. (This is all very confusing. I thought Treasurer Raimondo and not Governor Chafee was the fiscally prudent General Officer of the state.)

“In each of these years, we would need to provide this additional funding instead of having the savings accrue to the budget,” [Gubernatorial spokeswoman Christine] Hunsinger told WPRI.com. “Our proposal helps address the projected out-year deficits by not having to allocate funds to this purpose.” The state is on track to run a $349 million deficit in 2015-16.

However, that little detail doesn't seem to bother at least one fan of doing things the old way.

Rhode Island AFL-CIO President George Nee praised Raimondo’s position. “The labor movement appreciates the treasurer weighing in on the side of our members,” he said in an email. “The present law is sound fiscal policy and should remain unchanged.”

December 15, 2011

It All Makes Sense if you Understand They're Planning to Sell Their Rights to the Gold Mines Under Kennedy Plaza

Carroll Andrew Morse

Ted Nesi of WPRI (CBS 12) notes two developments in the the collapse of ProCAP, an organization that is supposed to address poverty issues that, while outside of the government-proper, receives "96% of its...revenue from taxpayers"...

Superior Court Judge Michael Silverstein granted ProCAP's request and named Thomas Hemmendinger as the agency's temporary court-appointed receiver during a brief hearing Wednesday. A permanent receiver will be named in early January.

The board voted 10-0 “to seek the protection of the courts through receivership" after a presentation by interim executive director Frank Shea that showed the taxpayer-funded nonprofit's financial woes are "much direr, quite frankly, than anybody thought," spokesman Bill Fischer said....

The city [of Providence] will loan ProCAP $250,000 on an emergency basis to keep its doors open and repaying the money will have priority in court, [Mayor Angel Taveras] said. The judge approved a $10,000 bond and described the step taken Wednesday as an "operational receivership" because the organization will remain open.

Let me get this straight. A city that has no money, because it spends more than it takes in, is loaning money to an organization that receives all of its money from public sources -- raising the question of how the "loan" will be paid back -- at the same time that a source of revenue is going to need to be found to pay for the services of a "receiver", who I assume is not working for free.

I'm not suggesting a connection here, just pointing out that the Rhode Island solution to ProCAP's problems seems to be to pile new debts on an already bankrupt organization that has no taxpayer-independent source of revenue with which to pay them back. Does Rhode Island's governing class really think that this is legitimate, rational finance?