RI ECONOMIC DEVELOPMENT CORPORATION
Moral obligation bonds first came to Rhode Island due to a crafty bond lawyer named James Skeffington and an ambitious governor frustrated with an electorate’s refusal to approve more debt. After the adoption of a state investment income tax in 1969 and the adoption of a state income tax in 1971, Rhode Island voters became wary of approving bond referendums. In each of three elections between 1969 and 1972, Rhode Islanders rejected bond referendums for economic development purposes. In 1973, James Skeffington, a lawyer eager for bond work, drafted legislation that created the R.I. Housing and Mortgage Finance Corporation (RIHMFC). This legislation avoided the need for a referendum by giving RIHMFC the authority to issue moral obligation bonds. Governor Philip Noel pushed the legislation through the General Assembly. A year later, in 1974, Skeffington helped to draft legislation creating the Rhode Island Port Authority and Economic Development Corporation, which was given the power to issue moral obligation bonds. Again, Noel pressed the legislation through the General Assembly.
Because of James Skeffington, Rhode Island’s first moral obligation bonds to promote economic development were issued in 1974 for Fairmount Foundry, which sought to a buy the ITT Grinnell Foundry in Cranston. One of the two owners of the Fairmount Foundry was a “friend” of Governor Noel. In 1976, the foundry floundered and closed. Rhode Island taxpayers paid over $4 million for the cost of a moral obligation bond they had never approved. Twenty years later, in 1993, under Governor Bruce Sundlun, a moral obligation bond was issued for a biotechnology company called Alpha-Beta Technology. In 1999, Alpha-Beta Technology closed, and Rhode Island taxpayers paid nearly $30 million for the cost of a moral obligation bond they had never approved.
Today, Rhode Island taxpayers are being forced to pay $112.6 million for a moral obligation bond issued by EDC for 38 Studios in their video gaming scheme, which voters never approved.
It is well known that Moral Obligation Bonds are merely a scheme used by politicians to avoid voter approval. They are simply a means by politicians of putting the public into debt without its consent. So, if Mr. Skeffington, the infamous architect of RI Moral Obligation Bonds thinks he is going to get one-red-cent of taxpayer financing in reward for his take-over of theTHINK AGAIN !
Doing what we’ve always done – will get us what we’ve always gotten. Screwed by the Political Machine for the politically connected!
“Section 16. Borrowing power of general assembly. — The general assembly shall have no powers, without the express consent of the people, to incur state debts to an amount exceeding fifty thousand dollars, except in time of war, or in case of insurrection or invasion; nor shall it in any case, without such consent, pledge the faith of the state for the payment of the obligations of others. This section shall not be construed to refer to any money that may be deposited with the state by the government of the United States”: and
Article VI, Section 1, of the Rhode Island Constitution states that:
“Constitution supreme law of the state. – This Constitution shall be the supreme law of the state, and any law inconsistent therewith shall be void.”
*Moral obligation bonds began in New York in 1960. New York Governor Nelson Rockefeller, a liberal Republican, had grandiose ambitions for government expansion. But the New York electorate resisted approving additional debt. Unwilling to limit his desires, Rockefeller turned to John Mitchell, a prominent municipal bond lawyer. To avoid the requirement of obtaining voter approval before incurring debt, Mitchell created the concept of the moral obligation bond. With moral obligation bonds, Rockefeller could incur debt for a housing authority and numerous other programs without obtaining voter approval through a bond referendum. Years later, after Mitchell was released from prison for his crimes associated with Watergate, he was questioned as to whether moral obligation bonds were simply a means of bypassing the rights of voters to approve debt in a referendum, and Mitchell admitted that this was “exactly the purpose” of moral obligation bonds. Ironically, due to the abuse of Moral Obligation Bonds, they were banned and remain illegal in the State of New York.
Source: S. Frias
Bio-James J. Skeffington
James Skeffington concentrates his practice in the areas of development, financing, syndication, leasing projects for governmental and private enterprise and management of civil and employment litigation for large multi-state corporations. He has been named a Rhode Island Super Lawyer since 2007 by Thomson Reuters. James has also been listed in the Best Lawyers in America publication for his work in Public Finance Law.
Served as a draftsman of the Rhode Island Business Corporation Business Act and several statutes creating public authorities which finance industrial development, health care institutions, educational institutions, and a variety of other public purpose projects throughout the country.
- Author of legislation designed to make Rhode Island a financial service center. He served as lead counsel to Fidelity Investments in the development of its national service center and to CVS Corporation in the development of new corporate headquarters and service facilities.
- Lead counsel in the development of major public and private joint ventures such as the Rhode Island Convention Center, the Providence Westin Hotel and the $350 Million Providence Place Mall.
- Created and managed programs for multi-state business entities in connection with the consolidation and defense of employment and civil litigation matters.
- Lead counsel to Boston Red Sox regarding special development projects.