The office of Governor Lincoln Chafee said that 38 Studios LLC, Schilling's company, hand-delivered a $1.1 million check to the Rhode Island Economic Development Corporation just before the close of business.

"Upon learning from the Chief Financial Officer of 38 Studios that there were insufficient funds to cover the payment, the check was returned. The EDC remains willing to accept readily available funds," the statement said.

Thursday's moves are the latest troubles for the video-game firm, which received an unusually large, $75 million taxpayer-backed loan from cash-strapped Rhode Island in 2010 on the promise that it would bring jobs and tax revenue to Providence.

Some jobs have come, relocated from neighboring Massachusetts, but 38 Studios has been slow to bring products to market and now faces a cash crunch.

The $1.1 million was originally due to the development agency on May 1. Chafee said earlier on Thursday that 38 Studios was in the process of making the payment.

On Monday, Chafee told the Providence Journal that he had met with company officials about "keeping 38 Studios solvent."

Keith Stokes, the development agency's executive director, who approved the 2010 loan, resigned on Wednesday, but did not link his decision to 38 Studios' troubles.

The agency said on Wednesday that it had met with representatives from 38 Studios for an update on the company's financial status and projections, asking "many probing questions." The board will take up the matter again on May 21.

Schilling, 45, was one of Major League Baseball's dominant pitchers for two decades, helping to win World Series titles for Arizona in 2001 and Boston in 2004 and 2007.

An avid gamer, Schilling's video game company is named after his jersey number. Besides the Rhode Island loan, the pitcher told Reuters in 2011 that he has invested up to $35 million of his own money into the company.

The loan guarantee to 38 Studios was approved during the administration of Chafee's predecessor, Republican Donald Carcieri.

Chafee is a former Republican U.S. Senator elected in November 2010 as an independent. In 2011, he forced changes at the development agency, capping the maximum loan amount it could pay under its job creation guarantee program at $10 million, $65 million less than the 38 Studios deal.

Formed in 2006, 38 Studios in February released its first, long-awaited product to the $65 billion video game market, "Kingdoms of Amalur: Reckoning." On its website the company says the game melds "a deep open-world RPG (role-playing game) experience with visceral action combat."

A second, multi-player game, codenamed "Copernicus," remains in development.

(Reporting By Ros Krasny; editing by M.D. Golan)

• A Permanent Economic Emergency