- Associated Press - Thursday, May 15, 2014

PROVIDENCE, R.I. (AP) - Republican gubernatorial candidate Ken Block said Thursday he would veto a state budget that includes repaying the bonds for the failed 38 Studios venture. The campaign of his Republican opponent, Cranston Mayor Allan Fung, said he would consider that option if elected.

The debate has heated up in recent days over whether to repay the bonds from the $75 million state loan guarantee given to former Red Sox pitcher Curt Schilling’s now-bankrupt company. A state-commissioned analysis released last week predicted Rhode Island’s bond rating would sink to junk status if the state defaults, raising future borrowing costs, and could harm the business climate.

The General Assembly must approve paying the bonds annually. It made its first payment of $2.4 million this month after lawmakers reluctantly approved the payment last session. It must soon decide whether to set aside $12.5 million for the next installment. The Democratic candidates say the bonds must be repaid, as does Gov. Lincoln Chafee.

But the Republican candidates disagree. When asked for specific steps they would take if elected to stop the repayment of the bonds, Block said in a statement that he would veto the entire state budget if it includes money for the bonds.

“In terms of other steps, I would push for legislation to eliminate moral obligation bonds in the future. And I would push for a resolution that sends a strong message to the financial community that Rhode Island will honor all of its other obligations,” he said.

The bonds issued were moral obligation bonds, which means there is no legal requirement to repay them. However, those in favor of repaying them argue that negative consequences of not repaying them are so dire that they must be repaid.

Fung would determine the best course of action after he’s governor, said his spokesman, Rob Coupe.

“All options would be on the table, up to and including a budget veto, if necessary,” Coupe said. “This situation also demonstrates the need to empower the governor of Rhode Island with line item veto authority, which Mayor Fung proposed recently as part of his government reform agenda.”