Carcieri cabinet member raised red flag

PROVIDENCE,  R.I. (WPRI) - Rhode Island's director of revenue said Friday she "was not in favor" of the 38 Studios deal in 2010 and expressed those concerns directly to then-Gov. Don Carcieri as a member of his cabinet.

"I did express it to Governor Carcieri; obviously he has a lot of people he listens to for advice," Revenue Director Rosemary Booth Gallogly said during a taping of WPRI 12's Newsmakers. "I think one of the things I mentioned was there were no rules or regulations for the issuance of these loans."

Gallogly – who began her career in the budget office in 1980 – had just been appointed the revenue director when Carcieri first floated the controversial idea of extending a taxpayer-guaranteed loan to Curt Schilling's video game company.

The R.I. Economic Development Corporation put in motion the $75 million 38 Studios deal just days after the General Assembly created a new $125 million loan program in June 2010. EDC Executive Director Keith Stokes, who resigned last month, later acknowledged rules and regulations for the loan program had not been written at the time the deal was finalized.

Gallogly said she expressed concern that the loan was a "large amount" of money and that 38 Studios was a startup company with no revenue, making it a risky investment.

"I have understood and learned through my career in the budget office that it isn't necessarily one perspective that a governor gets," Gallogly said. "It's a department director perspective, there are people from the outside, there are other stakeholders – so I’ve always respected that for every governor that I’ve worked with."

Gallogly said now that 38 Studios has filed for Chapter 7 bankruptcy protection it's unlikely taxpayers will be able to avoid paying back some of the loan, which could cost slightly more than $90 million including interest.

On Thursday, Jonathan Savage, a lawyer advising Chafee, said there are investors who've expressed interest in buying 38 Studios' assets, potentially providing "tens of millions of dollars" to help offset taxpayers' losses.

"I think it’s premature to be talking about what the exact value of those assets are; that's part of the process they're going through now," Gallogly said. "Obviously the state's going to work pretty hard to be sure it can take down that taxpayer obligation."

R.I. State Police Col. Steven O'Donnell confirmed to WPRI 12 on Thursday that his agency, the attorney general's office and federal authorities launched a joint criminal investigation Wednesday "into all aspects" of the 38 Studios deal.

Gallogly said law enforcement has not requested any information from her office yet.

Tim White ( twhite@wpri.com ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @white_tim

Ted Nesi contributed to this report