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Stem cell panel goes to work on funding

by Carl T. HallSan Francisco Chronicle
May 10th, 2005

Sacramento -- A new state finance panel took its first steps Monday to get some money flowing to the California stem cell research enterprise created by Proposition 71.

State Treasurer Phil Angelides presided over the inaugural meeting of the California Stem Cell Research and Cures Finance Committee, created by Prop. 71 to oversee the stem cell fund-raising program -- through taxpayer-backed bonds.

In an echo of November's election when Prop. 71 was approved, the finance committee authorized the issuance of $3 billion in state bonds to bankroll a 10-year program of research grants, new facilities and training efforts.

The six-member committee also took a step voters didn't anticipate, approving $200 million in short-term notes to finance the stem cell enterprise before the longer-term bonds can be floated.

For most state programs that depend on bond financing, such actions would generate little attention outside public finance circles. But not much can be done in the stem cell field without at least some controversy, and that was evident once again at Monday's meeting in a packed hearing room near the state Capitol.

The audience included patients in wheelchairs, who demanded decisive measures to speed development of stem cell cures, as well as critics of the enterprise, who argued against what they characterized as irresponsible financial moves.

A lawsuit filed by Prop. 71 opponents effectively blocks sale of any Prop. 71 bonds, because of the extra risk the lawsuit poses to bond buyers.

The $200 million in short-term instruments, known technically as "bond anticipation notes," would fill the financing gap at least for a while, allowing the program to move forward until the lawsuit is resolved. If the lawsuit can't be resolved, the bond anticipation notes would become worthless, in effect putting purchasers of the notes in the position of making a grant to the state stem cell program.

Officials envision charitable organizations stepping forward to pick up the notes, knowing full well they may never be repaid. No such organizations have been identified as yet, but Robert Klein, chairman of the stem cell program and a member of the finance panel, said he had no doubt some can be found.

The use of bond anticipation notes is one of several options being investigated to prevent the California Institute for Regenerative Medicine, created by Prop. 71, from shutting for lack of funds before making its first grant.

"We will pursue all reasonable alternatives of interim financing," Angelides said. "We anticipate this is going to be a hard fight. But we intend to win it."

The lawsuit was brought by two anti-tax groups that maintain Prop. 71's governance structure violates the state Constitution by creating an independent board to set policies and approve grants. The suit turns on tax issues, but it is backed by the anti-abortion movement, which opposes human embryonic stem cell research on moral grounds.

Dana Cody, a lawyer and executive director for the anti-abortion Life Legal Defense Foundation in Sacramento, is participating in the lawsuit. She also was in the audience Monday, although she didn't speak during the formal proceedings.

"I was there as an attorney to find out what's going on for our clients, not to try to change anyone's mind," she said in a telephone interview. "There is taxation without representation going on here."

In a closed session, the finance committee discussed the litigation and authorized state Attorney General Bill Lockyer to do everything necessary to clear away the legal hurdles. That would authorize a formal response to the lawsuit, and also would let Lockyer move ahead with a pre-emptive bond- validation suit designed to allow the first Prop. 71 securities to be sold.

Anne Sheehan, representing state Department of Finance Director Tom Campbell, abstained from the 5-0 vote authorizing the short-term notes, suggesting that it's unclear whether the notes would be the best way to structure an interim finance scheme.

Angelides made it clear that another meeting of the committee will be scheduled within a month to go over the key details, including how much interest might have to be paid to entice buyers into the program. All key steps for any bridge financing will be aired in a public meeting before any securities are brought to market, Angelides said.

Despite such assurances, critics of the stem cell program's implementation phase made it clear they have some doubts.

Jesse Reynolds of the Center for Genetics and Society in Oakland told committee members that conflicts of interest may arise if Klein or other leaders of the California Institute for Regenerative Medicine solicit contributions from organizations with a stake in future stem cell research grants.

Depending on how the interim financing scheme is structured, "the plan may be inappropriate and possibly in fact irresponsible," Reynolds said, charging that "reckless behavior" taken in haste could "endanger the mission of the institute."



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