May 23 Notebook


No Feeding at the State Trough, Except For…

The Associated Press’ Erika Niedowski caught this quote from attorney Max Wistow, who is representing the Economic Development Corporation in its lawsuit against the folks who brought the 38 Studios deal to the EDC, following a hearing yesterday on whether to dismiss the case…

It’s not a good idea to treat the state or any of its agencies as any kind of feeding trough.

…which is probably true. The irony is that Wistow was also the lawyer who initiated the speech-in-debate defense for former Rhode Island Senate President Joseph Montalbano during his tangle with the state Ethics Commission, which became the basis for exempting legislators from the Commission’s jurisdiction. So if Mr. Wistow’s entire body of work is taken into consideration, the statement should probably read something more like “It’s not a good idea to treat the state or any of its agencies as any kind of feeding trough, unless you’re a state legislator”.


The Reputation of the EDC

One more quote of interest from Mr. Wistow, also from Ms. Niedowski’s reporting

[Wistow] maintained the [RI EDC] has already suffered damages, including to its reputation, which he said will make it more costly to conduct future bond sales.

However, this rationale needs to be considered in the context of the the complaint filed by the EDC’s lawyers, which contains this statement…

None of the board members were experts in law, lending, videogaming, or economic development. The EDC Board’s understanding of the transactions was based upon information provided by a number of individuals and companies whoacted as advisors (the “Advisors”) to the EDC Board, as well as by Defendants Schilling, Zaccagnino, MacLean, and Wester of 38 Studios. That information led the EDC Board to conclude that the proposed transaction, although not without risk, had a reasonable probability of bringing high quality jobs and creating a new industry in Rhode Island,with 38 Studios as the anchor tenant and a cluster of companies performing related activities.

…because when you immediately concede that your clients don’t really know anything about the job they are responsible for and are liable to be fooled by anyone who puts on a good show, then what reputation is there to be damaged?


Coventry’s Latest Crisis and “Fiscal Stabilization”

Tim White and Ted Nesi of WPRI-TV (CBS 12) have a story on how the town of Coventry has decided to not make any major infusions of taxpayer dollars to shore up a massively underfunded pension plan expected to run out of money within 12 years…

The pension plan paid retirees nearly $1.4 million in benefits in 2011-12, and the tab is set to double over the next decade. The School Committee contributed $600,630 to the plan that year, far less than the $2.4 million its actuary said was required. Eligible employees put 8% of their paychecks in, for a total of $364,300 in 2011-12.

A resolution passed by the Town Council in December and supported by the School Committee argues the town is only responsible for depositing a set percentage of money into the pension plan – according to its contract, 12.75% of payroll – and not for depositing the amount required annually to ensure adequate funding of benefits. Most towns try to pay that amount, which is determined by an actuary.

Is the current town council hoping the problem will just disappear or begging the state to intervene (but without taking explicit responsibility)? Either way, it demonstrates the failure of Rhode Island’s “fiscal stabilization” process for dealing with municipal crises.  The fiscal stabilization process which could wind up with a “budget commission” or “receivership” was supposed to provide for the orderly handling of fiscal crises that could lead to all-out bankruptcy, but Coventry is on the same path, so-far, that it would have been prior to the fiscal stabilization law, i.e. ignore major financial problems until the state starts making ad-hoc arrangements, or until smarter people get elected.

Both Coventry and the state as a whole would be better off if local governments were clearly responsible for seeing through the bankruptcies they’ve facilitated, so that the “do nothing until things get so bad that someone is forced to come rescue us, and maybe we can duck the blame” option would have significantly less appeal.

Coventry would also probably be better off with a mayor, but that’s a longer subject.


Legislative Budget Increase and the Mid-Year Shortfall

Last week, Rhode Island Governor Lincoln Chafee announced he would withdraw a request for back-to-back 3% raises in June and December for his cabinet members, in light of a $50M shortfall and growing opposition in the legislature (AP story). Now that they’ve “cracked down” on executive branch spending, but the shortfall still remains, will the legislature still be requesting $3.2M more from general revenues for its own department than was originally budgeted (an additional 8.6% mid-year increase, over and above a 10.5% increase over the previous year) to finish out this fiscal year?

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