The Rhode Island General Assembly’s House Finance Committee heard testimony last Thursday from Matt Fabian of Municipal Market Advisors – an independent research service with about 300 subscribers – about the cost and implications of the state defaulting on the 38 Studios moral obligation bonds. Committee Chair Helio Melo’s main line of inquiry was “Does it cost us more money in the long run” if the state were to default on those bonds?
At 29 minutes into the hearing Fabian says that it is unlikely that the state’s general obligation rating would be lowered below investment grade, but it could be knocked down one, two or three notches. He says “It could go down to a BBB, the lowest investment grade rating … it is a scenario but not most likely.” This is the closest Fabian gets to predicting the cost.
Most members of the House Finance Committee wanted hard numbers to make a decision. Understandably, it seemed difficult for them to convert Fabian’s commentary into decisions for the state. WPRI.com reported:
The committee members listened to Fabian’s comments closely, but more than one expressed skepticism about the lack of hard data about the impact of a default.
“I say we get out of this now, have these insurance companies pay this bill, and then we negotiate with the insurance companies if they want to ‘morally’ come after us,” said Rep. Ray Hull, D-Providence.