Rep. Newberry Seeks Taxpayer Protection, EDC Liability

State House -- House Minority Leader, Brian C. Newberry (R-District 48, North Smithfield, Burrillville) introduced two bills last week; the main purpose of which was to protect taxpayers, control the liability of the state, and create greater oversight of an important financial system. 

Pursuant to the authority given to the corporation in the past, the Economic Development Corporation (EDC), issues and guarantees bonds in support of its mission to encourage and develop the business climate in Rhode Island. The EDC has used its authority for some projects for which other departments of the state are responsible. Projects funded by the EDC are intended to spur economic growth within the state and create jobs. Still, questions surround the EDC in connection with previously issued bonds and guarantees. The 38 Studios $75 million debacle of 2010 is one example. 

House Bill 5745 will limit the maximum amount the EDC can loan or guarantee to any single individual or entity to $5 million. “Limiting the maximum loan or guarantee amount to $5 million for any one company or individual will reduce Rhode Island’s risk and potential for liability,” said Newberry. 

The EDC has contracted a large amount of bonds over the last two decades. Records indicate that the principle balance owed on these obligations is over $1,060,000,000. In the past, the EDC has issued or guaranteed loans without the approval of either voters or the General Assembly. 

“When the state or one of its agencies guarantees a loan, it is like a parent co-signing for a son or daughter’s purchase,” said Newberry. “I want to give Rhode Islanders the ability to vote on these important debt matters, especially when Rhode Island is potentially liable for over $1 billion.”

House Bill 5746 will limit the total amount of loans, guarantees, and issuances the EDC can contract to $1 billion. “Creating debt in a responsible manner is a way to promote job creation in Rhode Island,” said Newberry. “The creation of an overall debt ceiling will give the taxpayers greater oversight and control over the extent of our state debt and will provide insight into the way the EDC conducts business.”

There is a need for greater oversight into the lending practices of the EDC. For example, the EDC has $380 million in bonds for the RI Airport Corporation ranging from 1994 to 2008. “I understand the Airport needs funding to meet federal guidelines and that it is a source of business travel and development within our state,” said Newberry. “However, the Airport Corporation should not have the ability to circumvent the normal channels for bonding. Our residents should have the right to vote on the matter.”  

Another department requiring greater bonding oversight is the Department of Transportation. To begin construction on five state projects, (relocation of I-195 and route 403, replacement of Washington and Sakonnet River Bridges, freight rail improvement) the EDC acquired funds through a federal grant anticipation process called GARVEE. The EDC contracted for $216 million in GARVEE Bonds in 2003, $184 million in 2006, and $169 million in 2009. Even though these GARVEE Bonds do not have the liability of default, Rhode Islanders or their elected officials should have the ability to vote on the issue. 

Future federal funding is used to pay the debt service of these financing instruments and two cents of the gas tax are appropriated to match the federal funds. Rhode Islanders have a vested interest in the bonding authority of the state and its quasi-agencies.

“The House Oversight Committee could investigate this indebtedness to create transparency for the public and increase the knowledge of the Assembly," said Newberry. "Debt use and planning is a complex topic, but very important. Our children and our children’s children will have to pay for the debts the EDC creates today.”

Both bills are co-sponsored by the House Republican caucus.