Rhode Island Elected Officials Subvert the Gift Clause, Taxpayers Pay the Price

Over at the Rhode Island Providence Journal, my colleague Jessica Miller and I express the need for Rhode Island (along with every other state) to enforce the constitutional provision called the Gift Clause. We explain Rhode Island’s latest public financing fiasco:

“Rhode Island’s $75 million loan guarantee to former baseball star Curt Schilling, like most government subsidies, promised to fulfill certain public objectives. Supporters of the deal cited economic growth, good paying long-term jobs, and increased tax revenue to justify pledging taxpayer funds and risking the state’s credit. However, Curt Schilling’s 38 Studios never brought the economic growth and long-term jobs its supporters promised. Rhode Island citizens found out the hard way, government and private enterprise do not mix.”

Unfortunately for taxpayers:

“Last month Schilling’s 38 Studio’s filed for bankruptcy and was forced to lay off its entire staff of over 400 without warning. Bankruptcy court documents indicate Schilling’s video game venture owes more than $150 million, mostly to the RIEDC, and smaller sums to over 1,000 different companies and individuals.”

The solution is to enforce the Gift Clause:

“The Rhode Island provision states that the “general assembly shall have no powers, without the express consent of the people, to incur state debts… nor shall it in any case, without such consent, pledge the faith of the state for the payment of the obligations of others.” Rhode Island is not alone; another 47 state constitutions contain similar provisions–that are often neglected or subverted.”

More troubling is how easily government officials could undermine the Gift Clause, mainly due to a lack of transparency:

“The purpose of the Gift Clause is to protect taxpayers from public financing fiascos like 38 Studios, but Rhode Island elected officials circumvented its prohibition on subsidies by issuing “moral obligation bonds,” which are issued at higher interest rates due to the fact Rhode Island can default on the loan. These moral obligation bonds deny taxpayers a say on how their money is invested. As a result, Rhode Island taxpayers will be paying off 38 Studios’ debt for years to come.

As The International Business Times reported, “Bondholders say that the state sold moral obligation bonds to skirt voters’ approval.”

When citizens are free to choose how tax dollars are spent and private enterprises compete in the open market, the public interest is satisfied. Yet the current system of government special interest spending and political connectedness leading to a small minority of government chosen winners still persists. For taxpayers, the former is possible if the wall of separation between government and private enterprise is rebuilt and elected officials are held accountability for wasting tax funds, violating the Gift Clause.

For more on the Gift Clause, see here, here, here, and here