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When will Rhode Island shake its 38 Studios hangover?

A rendering of the $400 million Tidewater Landing project was displayed at a press conference earlier this month. (Pat Greenhouse/Globe Staff/File) Pat Greenhouse/Globe Staff

PROVIDENCE — When a developer sought public investment for Providence’s former Industrial Trust building, an opponent said, “Hang on to your wallets! The ‘Superman’ building project has all the makings of another 38 Studios.”

When the owners of the Pawtucket Red Sox pursued public investment for a new Triple-A baseball stadium, opponents branded it “38 Stadium.”

And this year, after a developer received $25 million in tax credits for a proposed 46-story luxury residential tower, which would surpass the Superman building as the state’s tallest skyscraper, an opponent asked: “Does 38 Studios ring a bell?”

For many Rhode Islanders, “38 Studios” not only rings a bell, it represents a shorthand for the type of special deals and know-a-guy political culture that can stir a deep well of skepticism. And while seven years have passed since Curt Schilling’s video game venture went belly up, Rhode Island is still grappling with how to move past the fiasco as it seeks out new investment.

“It’s hard to let something like that go,” Bryant University economics Professor Edinaldo Tebaldi said of the state’s $75-million loan guarantee for the former Red Sox star’s bankrupt business. “It’s not pennies. But it’s time for us to learn from it and move forward.”


Tebaldi said the lesson from 38 Studios is straightforward: “Guarantees of public money for the private sector should not be on the table,” he said. “Don’t write a check to the private sector.”

Government should take steps such as offering tax incentives to attract jobs and investing in roads, bridges, and other public infrastructure, Tebaldi said. “But we should not be in the business of choosing who is the winner and who is the loser,” he said.

Darrell M. West, vice president of governance studies at the Brookings Institution and a former Brown University political science professor, said the words “38 Studios” still sting because the deal was such a high-profile failure and it fueled so much public anger.


For good reason, Rhode Islanders are “very suspicious of special deals and insider politics,” West said, and future proposals for public investment must be handled in a transparent way. Also, Rhode Island must build in safeguards to ensure those investments meet their goals, he said.

West said Rhode Island will only move past 38 Studios when it shows it has learned lessons from past blunders.

“If the state invests money in a project and it turns out good, 38 Studios will become a distant memory,” he said. “If we repeat the mistakes, it just reinforces public cynicism, and people won’t want to invest ever again.”

So, as another new year approaches, is Rhode Island still suffering from a 38 Studios hangover?

“Absolutely,” said Ken Block, a former Republican gubernatorial candidate who chairs the nonprofit group Watchdog RI. “Because no one has given us the aspirin to get over the hangover. The aspirin would be accountability.”

Just last month, the state Supreme Court heard oral arguments on Governor Gina M. Raimondo’s request to release records of the grand jury investigation of the 38 Studios fiasco. A statewide grand jury sat for 18 months, interviewing 146 witnesses, but it concluded in 2015 with no criminal indictments.

Without indictments, no one person has been identified as the main “villain” and held publicly accountable in the way that banker Joseph Mollicone Jr. was held accountable for triggering the state banking crisis in the early 1990s, Common Cause Rhode Island executive director John M. Marion said.


“Mollicone’s punishment provided catharsis for many people,” Marion said. “Some people served time, and that allowed the state to say justice was done.” But in the 38 Studios case, no one has been charged criminally or sent to jail, he noted.

Common Cause joined a legal brief urging the Supreme Court to make an exception to secrecy rules and release the grand jury records. Marion said that would allow the public to see if the investigation was thorough and provide more answers about the 38 Studios debacle.

Meanwhile, some say, the state is missing out on other opportunities as it stews about 38 Studios.

“Whatever millions were lost on 38 Studios, we have lost more on the missed opportunity to make investments in Rhode Island,” said Bill Fischer, a long-time public relations professional whose clients include the developer who owns the “Superman” building. “The original mistake has held us back.”

While the words “38 Studios” get tossed around a lot, Fischer said it’s important to draw distinctions.

The Schilling venture amounted to a “backroom, inside deal” for a startup video game company, he said, noting the Legislature OK’d a $125-million loan program and some legislators say they didn’t know $75 million of that was earmarked for 38 Studios. And that differs from a “brick and mortar” proposal that ends up being publicly vetted, he said.


In 2014, the owner of the “Superman” building sought $39 million in state help to convert the 26-story landmark into 278 apartments. But that plan went nowhere, and the Art Deco building — which resembles the Daily Planet in the “Superman” TV show — remains vacant.

“The timing of the project was very unfortunate, right on the heels of 38 Studios,” Fischer said. “That was the canary in the coal mine of a post-38 world.”

Block contended that the developer made a poor investment in buying the “Superman” building and was essentially looking for public investment to bail him out. “And that is the last thing we should be doing with state taxpayer money,” he said.

Fischer said public investment can pay off. He noted the former Masonic Temple building stood unfinished for decades before public support helped the Renaissance Providence Downtown Hotel open in 2007. And he noted the partially state-funded South Street Landing project opened in Providence in 2017, converting an old power station into a nursing school and academic offices.

David Preston, a long-time public relations professional whose clients include the Quonset Development Corporation, said the Quonset Business Park offers another example of how public investments pay dividends.

The site has received $600 million to $700 million in public investment since it morphed from a Navy base to a business park over a period of almost 40 years, he said, and the payoff has been $2 billion in private investment and nearly 12,000 employees, he said.


Preston now serves as spokesman for Fortuitous Partners, the developer proposing a soccer stadium as part of a $400 million development on three sites in Pawtucket.

That proposal calls for $70 million to $90 million in public investment, mostly through tax increment financing. But unlike the PawSox proposal, the stadium would be funded entirely with private money, and the public investment would go into public infrastructure such as sewer connections, a pedestrian bridge, and riverside parks.

“38 Studios certainly has made proposals requiring public investment more difficult — perhaps more difficult than they should be,” Preston said. “But we are hoping that when this project is complete, folks will point to it as a good example of mixing public and private investment to achieve success.”

Rhode Island Secretary of Commerce Stefan Pryor said it’s important to learn lessons from the state’s past experiences and apply those lessons going forward.

The Raimondo administration revamped the way economic development is done and created strong taxpayer protections, he said. For example, Rebuild Rhode Island tax credits are only issued once a development project is completed and receives a certificate of occupancy, he said.

“We cannot let ghosts of the past haunt our future to the point where we’re paralyzed with fear,” Pryor said, “because that would hinder or even halt Rhode Island’s economic progress.”

One potential salve for 38 Studios pain is the legal action to recoup money lost in the 38 Studios mess. So far, those efforts have clawed back $61 million of the $88.3 million in debt stemming from the deal, Rhode Island Commerce Corporation spokesman Matthew Sheaff said. After legal fees, the recovered amount totals nearly $50 million.

Marion said the 38 Studios hangover will fade in time. But he noted other projects involving public investments — such as an expanded T.F. Green Airport or Boston’s “Big Dig” — provide the public with something they can use for years to come.

“With 38 Studios, that money evaporated,” Marion said. “There is no monument — except for kids playing outdated versions of ‘Kingdoms of Amalur’ in their basement.”

Edward Fitzpatrick can be reached at edward.fitzpatrick@globe.com. Follow him on Twitter at @FitzProv.