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Editorial: Agency in denial - Stem cell board lacks money, not issues [California]

Sacramento Bee
August 13th, 2005

People who suffer a serious medical setback often can't come to grips with it. Paralyzed stroke victims, for instance, sometimes insist they can raise their arms when they can't.
Doctors call this disorder "denial syndrome". California's $3 billion stem cell research institute appears to be afflicted by it.

Lawsuits filed by opponents of embryonic stem cell research have prevented the state from issuing bonds for the Institute for Regenerative Medicine, putting the whole program in limbo. These lawsuits are hugely dispiriting to Californians who support stem cell research, but they are a reality, and they could delay the institute's research grants by one or two years.
Institute leaders need to make the most of this lull by settling issues that will continue to dog the institute over the next decade. Instead, Institute Chairman Robert Klein II continues to toot his horn and cry "full steam ahead!" even as his ship remains tethered to the dock.

The latest exercise in institutional denial came Aug. 3 in San Francisco, where the institute held the first meeting of its grants review committee. The institute invited 15 scientists from across the country to meet at the swanky Hotel Monaco and review applications for training grants.

After two days of closed-door meetings, the committee adjourned after deciding which young California scientists are deserving of $15 million in training funds.

The only problem? There is no $15 million. It doesn't exist. The institute may have it next month when it announces the grant recipients at a meeting in Sacramento. Then again, maybe it won't.

To provide stopgap funding, Klein has cooked up plans with state Treasurer Phil Angelides and Controller Steve Westly for the state to issue $200 million in "bond anticipation notes." (Both Angelides and Westly are vying for the Democratic Party's nomination for governor.) Under the plan, the state would pay back buyers of these notes if and when the stem cell agency triumphs in court. Otherwise, the note buyers would assume all the risk.

Why would any investor take this gamble? According to Klein, there are charitable organizations that might. Klein won't say who they are, but it is likely he has approached deep-pocketed entities that support stem cell research and supported Proposition 71, such as the Bill and Melinda Gates or Howard Hughes foundations.

There are two problems with this approach. One, no state bureaucracy should be soliciting major charitable contributions if it expects to be a public agency. Imagine if lawmakers cut the budget of the state Pharmacy Board, prompting it to seek contributions from nonprofit groups. Before long, the Woody Harrelson Foundation could end up controlling a board that decides who dispenses drugs in California.

It is also misleading for Klein and others to claim that buyers of bond anticipation notes will assume all risks. If these notes are sold and the lawsuits go against California, it is unlikely the foundations will simply swallow their losses. They will exert enormous pressure on state lawmakers to reimburse them for some or all of the $200 million, adding to the state's budget problems.

So far, only state Finance Director Tom Campbell has publicly voiced concerns about Klein's plan. As he told The Bee in June, "The voters, when they approved the (stem cell) initiative, understood there would be the usual kinds of processes in putting out the bonds."

Angelides and Westly should heed Campbell's warnings and urge Klein to make the best of this unfortunate lull. During this period, the institute should resolve concerns raised by this page and watchdog groups about the institute's conflict-of-interest policies, research ethics and licensing of therapies. Those concerns won't go away, so it would be smart for the institute to settle them now, so it can quickly get to work when the lawsuits are resolved.

Angelides and Westly also need to exercise more fiduciary responsibility over this agency. At its meeting Friday, the institute's board approved a $378,000, no-bid contract with the public relations firm Edelman. It also agreed to increase a no-bid contract with a San Leandro law firm from $200,000 to $520,000 to provide general counsel services.

No-bid contracts appear to be the default policy of this agency. They shouldn't be. California's elected leaders need to use their influence to ensure this agency uses its limited funds wisely.

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