“Implementation of Proposition 71, the California Stem Cell
Research and Cures Initiative”
Overview of Proposition 71
The Institute is governed by a 29-member Independent Citizen's Oversight Committee (ICOC), comprised of representatives of specified University of California campuses, other public or private California universities, nonprofit academic and medical research institutions, companies with expertise in developing medical therapies, and disease research advocacy groups. The Governor, Lieutenant Governor, Treasurer, Controller, Speaker of the Assembly, President pro Tempore of the Senate, and certain University of California Chancellors all made appointments to the ICOC and the ICOC conducted its first meeting in December, 2004.
Proposition 71 authorizes the state to sell $3 billion in general obligation bonds, and limits bond sales to no more than $350 million per year. The measure states its intent that the bonds be sold during a ten-year period. The measure provides that for the first five years, repayment of the principal is postponed and interest on the debt is to be repaid using bond proceeds rather than the General Fund revenues. The funds authorized for the Institute are continuously appropriated without regard to fiscal year.
The Institute is eligible to receive a $3 million start-up loan from the state General Fund for initial administrative and implementation costs. The Institute must repay the General Fund loan using the proceeds from the sale of bonds authorized under this measure.
Priority for research grant funding under Proposition 71 is given to stem cell research that meets the Institute's criteria and is unlikely to receive federal funding. In certain cases, funding can also be provided for research that does not meet these criteria. The Institute may not fund research on human reproductive cloning.
Up to 10 percent of the funds available for grants and loans is available to be used to develop scientific and medical research facilities for nonprofit entities within the first five years of the implementation of the measure.
Benefits from Licenses, Patents and Royalties
The ICOC is required to establish standards requiring that all grants and loans be subject to agreements allowing the state to financially benefit from licenses, patents, and royalties and resulting from the research activities funded under the measure.
Right to Conduct Stem Cell Research
Consistent with current statute, this measure makes conducting stem cell research a state constitutional right.
Public Reporting and Accountability Measures
The initiative requires the ICOC to issue an annual report setting forth its activities, grants awarded, grants in progress, research accomplishments, and future program directions. The ICOC must also commission an annual independent financial audit of its activities from a certified pubic accounting firm, which shall be provided to the State Controller, who shall review the audit and annually issue a public report of that review. The Controller must establish a Citizen’s Financial Accountability Oversight Committee chaired by the State Controller to review the annual financial audit, the State Controller’s report and evaluation of that audit, and the financial practices of the Institute.
ICOC Working Groups
The initiative establishes three working groups to make recommendations to the ICOC:
The Scientific and Medical Research Funding Working Group, the purpose of which is to recommend to the ICOC criteria, standards, and requirements for reviewing research applications; review grant and loan applications and make recommendations to the ICOC for the award of research, therapy development, and clinical trials grants and loans. The initiative directs that the working group recommend its first grant awards within 60 days of the issuance of interim standards for funding applications by the ICOC.
The Scientific and Medical Accountability Standards Working Group, the purpose of which is to recommend to the ICOC scientific, medical, and ethical standards for medical research and clinical trials, including standards for safe and ethical procedures for obtaining materials and cells for research and for appropriate treatment of human subjects in medical research. The initiative also directs this working group to make recommendations to the ICOC for oversight of funded research.
The Scientific and Medical Research Facilities Working Group, which is to make recommendations to the ICOC on requirements and standards for applications for and awards of grants and loans for buildings, building leases, and capital equipment. The initiative requires that all funded facilities and equipment be located in California and further requires that all grantees be non-profit entities. Finally, the initiative requires that each grantee secure matching funds equal to at least 20 percent of the award.
Staffing of Institute and ICOC
Proposition 71 provides for the selection of a Chairperson and Vice Chairperson, whose duties are to lead the 29-member ICOC. At its first meeting in December, 2004, the appointed ICOC members selected Robert Klein, II, Chairperson of the Yes on 71 campaign, as its Chairperson, and Ed Penhoet, a biotechnology and foundation leader, as its Vice Chair.
According to Proposition 71, the duties of the Chair of the ICOC are to manage the ICOC agenda and work flow, and to supervise all annual reports and public accountability requirements, to interface with the California Legislature, Congress, and the public, to lead negotiations for intellectual property agreements, policies, and contract terms. The Chair also serves as a member of the Scientific and Medical Accountability Standards Working Group and the Scientific and Medical Research Facilities Working Group, and also as an ex-officio member of the Scientific and Medical Research Funding Working Group.
The duties of the Vice Chair are to support the Chair in all of his/her duties and to carry out the Chair’s duties in his/herabsence.
Proposition 71 also authorizes the ICOC to approve up to 50 full time staff positions for the Institute, including a President. According to the initiative, the President’s duties are to serve as the chief executive of the Institute, recruit scientific and medical staff, serve on the working groups, and to oversee necessary staff work to support the ICOC in evaluating and acting on recommendations from the working groups on grants, loans, facilities, and standards. The ICOC recently appointed Zach Hall, a veteran neuroscientist, medical school administrator, and biotechnology entrepreneur, as interim President of the Institute, and has commenced a formal search process to find a permanent President.
Proposition 71 provides that notwithstanding provisions of the Government Code, the ICOC shall set compensation for the Chairperson, Vice Chairperson, President, and staff of the Institute within the range of compensation levels for executive officers and scientific, medical, technical, and administrative staff of medical schools within the University of California system and non-profit academic and research institutions.
Proposition 71 Amendment Provisions
The initiative provides that it may be amended in furtherance of the purposes of the initiative by a bill introduced and passed no earlier than the third full calendar year following adoption of the initiative by 70 percent of the membership of both houses of the Legislature.
Fiscal Effects of Proposition 71
According to the Legislative Analyst, if the $3 billion in bonds authorized by this measure were repaid over a 30-year period at an average interest rate of 5.25 percent, the cost to the General Fund would be approximately $6 billion to pay off both the principal ($3 billion) and interest ($3 billion). The average payment for principal and interest will be approximately $200 million per year.
The initiative would allow the state to receive payments from licenses, patents, and royalties resulting from the research funded by the Institute. The amount of revenues the state would receive from those types of arrangements is unknown but could be significant. The amount of revenue from these sources would depend on the nature of the research funded by the Institute and the exact terms of any agreements for sharing of revenues resulting from that research. To the extent that the measure attracts additional federal or private funding of research or results in expansion of the state’s biomedical industries, it would also produce other economic benefits. To the extent that the measure results in reductions in the cost of health care, it would also result in economic benefits for the state.
Issues Raised Concerning Implementation of Proposition 71
Lawsuits Challenging Validity of Proposition 71
On February 22, 2005 two lawsuits were filed with the California Supreme Court seeking to halt the new stem cell research program. The first, filed by a group calling itself the Californians for Public Accountability and Ethical Science, contends that Proposition 71 violates the single subject rule for propositions by allowing funding for both embryonic and other types of stem cell research. It also claims the initiative violates conflict of interest laws by requiring members of the ICOC to come from universities, research institutions, disease advocacy groups, or biotechnology companies that could have an interest in the research being funded.
The second suit, filed by the groups People’s Advocate and the National Tax Limitation Foundation, claims that Proposition 71 violates the California Constitution by giving the ICOC power to spend state dollars without oversight from the Legislature or executive branch. Life Legal Defense Foundation, a legal organization that opposes embryonic stem cell research, is also supporting the legal challenge.
Criteria for Grants
A petition recently filed with the ICOC by Dr. Phillip Lee, a former US Assistant Secretary for Health and Human Services, and Charles Halpern, a public interest attorney, asks that the ICOC consider no grants or loans until grant guidelines are adopted by the ICOC, and potential applicants have been given an opportunity to prepare applications and to apply. According to the petition, such guidelines should specify selection criteria, the substantive scope of the grant program (e.g. whether all grants must be for embryonic stem cell research), the size of the grants being considered, matching requirements (if any), and the availability of grants for capital projects. In addition, no grants or loans will be considered until guidelines are in place which assure that the financial interest of the state and its taxpayers are specified and protected.
The Committees may wish to ask what formal criteria or guidelines the ICOC has adopted, or is likely to adopt, reflecting its priorities for research and facility funding, and when those criteria and guidelines are expected to be put in place.
Salaries of ICOC Officers and Institute Staff
Proposition 71 requires the ICOC to set compensation for the ICOC Chairperson and Vice Chairperson, Institute President and other officers, and the scientific, medical, technical, and administrative staff of the Institute within the range of compensation levels for executive officers and scientific, medical, technical, and administrative staff of medical schools with the University of California and nonprofit academic and research institutions.
The petition recently filed by Dr. Phillip Lee and Charles Halpern asks the ICOC to ensure that no employee or officer of the ICOC or the Institute shall receive a salary higher then the highest paid Institute Director at the National Institutes of Health (NIH) ($290,000), and that no employee, other than the Chair, Vice-Chair, and President, shall receive a salary higher than the Secretary of Health and Human Services of the state of California ($131,000). The petition further asks that all hiring shall be done through an open process, with jobs posted so as to attract candidates from minority groups, women, and disadvantaged communities.
The Committees may wish to ask whether pegging salaries for ICOC and Institute staff to the University of California and private research institutes is a reasonable guideline and whether the size and prestige of Proposition 71’s research program may enable the ICOC and Institute to attract top scientific and administrative talent without paying the highest salaries.
Open Meeting Issues
Proposition 71 applies the Bagley Keene Open Meeting Act to the meetings of the ICOC and requires the ICOC to award all grants, loans, and contracts in public meetings, as well as all governance, scientific, medical, and regulatory standards. The initiative allows the ICOC to conduct closed sessions as permitted by the Bagley Keene Act, as well as to consider:
Matters involving information relating to patients or medical subjects, disclosure of which would compromise personal privacy.
Matters involving confidential intellectual property or work products of various kinds.
Matters involving pre-publication, confidential scientific research or data.
Matters involving personnel matters.
The initiative provides that the California Public Records Act applies to all records of the ICOC, except as otherwise provided in the Act, and generally exempts the above items as well.
The initiative provides that the working groups are not subject to open meeting laws, but provides that records the working groups submit as part of their recommendations to the ICOC shall be subject to the Public Records Act.
The petition recently filed with the ICOC by Dr. Phillip Lee and Charles Halpern asks the ICOC to subject the medical standards and research facilities working groups to open meeting and public records laws, with exceptions as allowed by those laws. It further asks the ICOC to require the grants review working group to comply with the Bagley Keene Act and Public Records Act, with further exemptions as deemed appropriate by the ICOC in order to permit closed meetings when necessary to assure that scientific peer review, as that term is defined in NIH Sec. 5501.109(b)(7), is thorough and effective.
SB 18 (Ortiz) states the intent of the Legislature that all meetings of Proposition 71 working groups be subject to the Bagley-Keene Open Meeting Act.
The Committees may wish to ask why Proposition 71 exempts its working groups from open meeting laws and whether the ICOC intends to override those provisions of Proposition 71.
The Committees may also wish to ask, in cases where deliberations of the ICOC and its working groups are conducted in closed session, what record of decisionmaking will be accessible to the public to enable public participation in decisions of the ICOC and its working groups.
Conflict of Interest Issues
The initiative applies the Political Reform Act to the Institute staff and members of the ICOC, with certain clarifications. It specifically allows a member of the ICOC to participate in a decision to approve or award a grant, loan, or contract to a non-profit entity in the same field as his or her employer. It also allows an ICOC member to participate in awarding a grant, loan, or contract for purposes of research involving a disease from which the member or an immediate family member suffers from or which the member has an interest in as a representative of a disease advocacy organization.
The initiative also provides that service as a member of the ICOC shall not be deemed incompatible with service as a faculty member or administrator of the University of California, representative or employee of a disease advocacy organization, a nonprofit academic research institution, or a life science commercial entity.
Government Code Section 1090 prohibits various public officers and employees from making any contracts in their official capacity in which these individuals have a financial interest. Proposition 71 provides that Section 1090 does not apply to any grant, loan, or contract made by the ICOC unless the grant, loan, or contract directly relates to services to be provided by a member of the ICOC or financially benefits the member; and the member fails to recuse himself or herself from participating in the decision involving the grant, loan, or contract.
The initiative provides that because the working groups are purely advisory and have no final decisionmaking authority, their members are not subject to the Political Reform Act and do not have to file statements of economic interest under that Act (Form 700s). Instead, it makes working group members subject to conflict of interest rules to be adopted by the ICOC, which shall be based on standards applicable to members of scientific review committees of the NIH.
Existing NIH rules concerning conflicts of interest require reviewers of grant applications to sign a one-page form certifying that they have no conflicts of interest with the applications, to identify any applications with which they do have a conflict of interest, and to pledge to recuse themselves from their review. The rules require such reviewers to additionally certify after they have reviewed applications that they did not participate in the evaluation of any application or proposal in which they had a conflict of interest. The NIH rules state that a conflict of interest exists when a reviewer or a close relative or professional associate of the reviewer has a financial or other interest in an application that is likely to bias the reviewer’s evaluation of the application. The rules further state that a reviewer shall have a real conflict of interest if he or she or a close relative or associate has received or could receive a direct financial benefit of any amount deriving from the application; has received or could receive a financial benefit from the applicant institution or principal investigator that exceeds $10,000 per year, including honoraria, fees, stock, or other financial benefit; or has any other interest that is likely to bias the review of the application. The latter can include any professional or close personal relationship with the any member of the research team presenting the application.
The rules further provide that a reviewer who is a salaried employee or is negotiating employment with the applicant institution is deemed to have a conflict of interest with regard to any application from that institution, with exceptions.
Dr. Phillip Lee and Charles Halpern recently filed a petition with the ICOC proposing among other things that all paid executives and staff of the Institute and ICOC adhere to rules similar to those recently issued by the NIH. The petition additionally asks the ICOC to subject its three working groups to the Political Reform Act and asks that specific conflict of interest standards be adopted by the ICOC before any members are appointed.
Recently Adopted NIH Rules Concerning Conflicts of Interest
The Secretary of Health and Human Services recently promulgated interim final rules governing conflicts of interest by employees of federal agencies including the NIH. The rules generally cover relationships between employees and designated entities that are affected by NIH decisions in the areas of employment, financial holdings, and receipt of gifts. The rules do not apply to scientists who serve on NIH grant review panels or to outside researchers who apply for NIH grants. The rules came after congressional investigators found that more than 100 NIH employees had not disclosed relationships they had with pharmaceutical and biotechnology companies, in violation of government ethics rules.
For all NIH employees, compensated or uncompensated employment, including consulting and advisory or other board service, and compensated teaching, speaking, writing, or editing, is now prohibited with or for the following entities:
Substantially affected organizations (defined to include biotechnology.pharmaceutical, medical device companies, and others with similar interests).
Hospitals, clinics, health maintenance organizations, or other health care providers.
Health, science, or health research-related trade organizations, professional associations, or consumer or advocacy groups.
Educational institutions or non-profit independent research institutes that are or recently were NIH funding applicants, grantees, or contractors.
Under the new rules, NIH employees who file public or confidential financial disclosure reports are prohibited from acquiring or holding financial interests, such as stock, in biotechnology, pharmaceutical, and medical device companies and other entities involved in the research, development, or manufacture of medical devices, equipment, preparations, treatments, or products. All other employees (i.e., those who do not file either of these reports) are subject to a $15,000 cap on holdings in such companies.
Senior employees may not receive gifts with an aggregate market value of more than $200 that are an award given because of their official position or from a prohibited source. Other employees having official responsibility for matters involving the donor (even if not personally involved) may not receive the gifts with an aggregate market value of more than $200 that are an award given from such a donor. Employees generally may receive awards from outside sources that are nothing more than plaques or trophies of little intrinsic value and free attendance and food at the event in which the employee is honored.
SB 18 (Ortiz) states the intent of the Legislature that the ICOC ensure that requirements for reporting of economic interests for ICOC members and Institute staff be commensurate with those required of public officials as defined under the Political Reform Act. SB 18 also states intent that requirements for disclosure of economic interests and public access to economic interest statements for Proposition 71 working groups meet or exceed those required of peer review groups convened by the National Academies of Science.
ACR 1 (Negrete-McLeod) urges the ICOC to develop, prior to the award of loans, grants, and contracts for stem cell research and facilities, robust conflict of interest standards for its members and its working group members and to report to the Legislature on or before April 1, 2005 on its implementation of the resolution.
In July, 2004, a US government ethics office demanded that federal agencies more fully comply with rules requiring experts who serve on advisory panels to declare potential conflicts of interest. In March, 2004, the US General Accounting Office found that two-thirds of scientists and other specialists who serve on advisory panels fail to complete financial conflict of interest forms and in some cases are given special titles to exempt them from requirements to declare conflicts of interest.
The Committees may wish to ask whether the ICOC should apply recently adopted NIH standards prohibiting ownership of biotechnology and pharmaceutical company by senior employees to employees of the ICOC and the Institute.
The Committees may also wish to ask whether statements of economic and other interests completed by Proposition 71 working group members should be accessible to the public, as are Form 700s under the Political Reform Act.
Patenting and Intellectual Property Issues
Proposition 71 contains a general statement directing the ICOC to establish standards that require all grants and loans to be subject to intellectual property agreements that balance the opportunity of the state to benefit from the licenses, patents, and royalties that result from basic research, therapy development, and clinical trials with the need to ensure that essential medical research is not unreasonably hindered by the intellectual property agreement.
An economic analysis commissioned by proponents of Proposition 71 before it was adopted suggested that royalties to the state from research funded under Proposition 71 could generate $537 million to $1.1 billion over the life of the program.
In 1980, in an effort to promote greater commercialization of federally funded research, Congress passed the Bayh-Dole Act. Under the Act, research recipients, for example, the University of California, are allowed to own inventions resulting from research grants they receive, and are encouraged to seek patents for the inventions and to enter into licensing arrangements with outside entities to develop and commercialize the inventions.
While the Act has been successful in moving inventions out of laboratories and into commerce, it has been faulted for leading to a fragmentation of patents and licenses and for not ensuring the affordability or accessibility of products or treatments resulting from publicly funded research, including to government programs serving lower income persons.
Handling of intellectual property created under state contracts was the subject of ACR 252 (Mullin), passed by the Legislature in 2004. The resolution requests the California Council on Science and Technology to create a special study group to develop recommendations to the Governor and Legislature on how the state should treat intellectual property created under state contracts, grants, and agreements.
SB 18 (Ortiz), introduced in December, 2004, states the intent of the Legislature that contracts, awards, grants, or loans entered into by any state entity that provides state funding for biomedical research ensure all of the following:
The contract, award, grant, loan, or other arrangement does not result in a gift of public funds.
Any clinical treatments, products, or services resulting from the biomedical research are made available at affordable costs to low-income residents, including health care and preventive health programs funded in whole or in part by the state and counties that serve low-income residents.
The terms of any loan, lease, or rental arrangement are consistent with market rates.
The state recoups its legal and administrative costs associated with patenting and licensing activities related to the biomedical research.
The state is provided a share of the royalties or revenues derived from the development of clinical treatments, products, or services resulting from the research that is commensurate with its role in the development of the clinical treatments, products, or services.
Any royalties or licensing revenues are used to repay any costs of issuing bonds associated with the biomedical research being funded.
The Committees may wish to ask what protections the ICOC intends to put in place to ensure that the state receives a return on its investment in research and that any resulting products or treatments are affordable and accessible to low-income residents.
Medical and Ethical Standards—Protection of Research Subjects and Donors
Proposition 71 states that in order to avoid duplication or conflicts with standards for scientific and medical research, the Institute shall develop its own scientific and medical standards. It further directs the ICOC to establish standards for informed consent of research donors, patients, or participants, and for review of research involving human subjects, which are generally based on the standards in place as of January 1, 2003 for research funded by the NIH, with modifications to adapt to the mission and objective of the Institute.
The initiative specifically prohibits compensation to research donors or participants, while permitting reimbursement of expenses. It also directs the ICOC to develop standards to assure compliance with state and federal patient privacy laws and to limit payments for the purchase of stem cells or stem cell lines to reasonable payment for the removal, processing, storage, transport, or implantation of the stem cells or cell lines.
Finally, the initiative sets a limit on the time during which stem cells may be extracted from blastocysts, which shall initially be 8 – 12 days after cell division begins.
A number of individuals and groups associated with the Pro Choice Alliance for Responsible Stem Cell Research have suggested that the ICOC adopt a policy of not funding therapeutic cloning projects that involve multiple egg extraction as a means of securing eggs for research and instead limit approval to extraction of eggs by means of ovariectomies or tubal ligations, as a safer and more ethical approach. The groups also advocate having the personal physicians of women who are considering providing eggs for research conduct the informed consent procedures. In addition, the groups advocate putting in place a mechanism for long-term follow-up regarding the health of women egg donors and requiring a neutral and independent oversight body review all data on the safety of hyperstimulation drugs to better assess the risks and benefits of the drugs.
The groups note that other countries, such as Canada, have imposed moratoria on somatic cell nuclear transfer research, at least in part due to concerns about impacts on women’s health.
According to an open letter submitted by Suzanne Parisian, MD, a former Chief Medical Officer of the Food and Drug Administration and physician, the long term health risks for a woman receiving Invitro Fertilization drugs for egg retrieval are unknown. According to trial data submitted to the Federal Drug Administration, severe ovarian hyperstimulation syndrome occurs in about three–eight percent of patients and can lead to a serious life-threatening condition days after completion of egg collection and is also associated with increased risk of clotting disorders, kidney damage, and ovarian twisting. In addition, ovarian stimulation has been associated with serious and life-threatening pulmonary conditions. Finally, studies to date have not ruled out a possible link between stimulation drugs and increased risk of ovarian cancer.
Proposition 71 states that in order to avoid duplication or conflicts with other standards for medical research, the ICOC is instructed to develop its own standards. The initiative specifically exempts Proposition 71 funded research from several provisions of SB 253 (Ortiz) of 2002, and SB 322 (Ortiz) of 2003, including the requirement that embryonic stem cell research projects be reviewed by an Institutional Review Board and that such projects be subject to guidelines being developed by the Department of Health Services with the assistance of a technical advisory committee, which are due to be published in early 2006.
A number of guidelines governing standards for protection of donors of eggs and embryos either exist or are in the process of being drafted. For example, the National Academy of Sciences is expected to release a long-awaited set of standards dealing with a variety of ethical issues presented by embryonic stem cell research and somatic cell nuclear transfer later this spring. In addition, the guidelines required by SB 322 noted above were due in January, 2005.
Finally, standards developed by the American Society for Reproductive Medicine governing women undergoing egg extraction and use of hyperstimulation drugs for purposes of donating eggs to infertile individuals and couples (for reproductive purposes) state that donors who provide informed consent may donate eggs for these purposes. The standards state that women should not be induced into donating eggs for these purposes through use of economic incentives, and establish dollar thresholds for payments to donors that are either presumptively permissible or not permissible.
SB 18 (Ortiz) states the intent of the Legislature that patients undergoing assisted oocyte production, whether for purposes of donating eggs for medical research or for reproductive purposes, be provided with a standardized written summary of all known and potential medical risks associated with assisted ooctye production. The measure also states intent that prior to providing assisted oocyte production, the treating provider obtain written consent from the patient. In addition, SB 18 requires providers of assisted oocyte production to provide patients with timely and appropriate information to allow the patient to make an informed choice regarding the disposition of any oocytes remaining following the procedure and to obtain written consent for any donation of oocytes for research.
SB 18 also states intent that no human oocyte or embryo shall be acquired or otherwise transferred for valuable consideration, defined as payments beyond those reasonably related to removal, processing, or storage of oocytes or embryos. Finally, the bill states intent that no payment in excess of what is necessary to reimburse expenses shall be made to any research subject to encourage her to produce human oocytes for purposes of medical research.
The Committees may wish to ask what process the ICOC has either established or plans to establish to develop standards for protection of research donors and subjects and whether it will be a deliberative process that allows all perspectives to be presented and considered by the ICOC.
The Committees may also wish to ask what steps the ICOC intends to take to ensure that women’s health issues involved in egg and embryo donation are fully vetted and considered.
Consideration of Disease Disparity and Diversity in Hiring, Contracting, and Appointments Issues
The Greenlining Institute has formally requested the ICOC, in a letter dated February 7, 2005 to Robert Klein, to commit to several goals concerning disease disparity issues and diversity issues. Among other things, the Institute has asked the ICOC to ensure that it secures full insight into the health issues of special concern to the state’s 20 million minority residents; ensure that its staff and contractors reflects the diversity of California; ensure that all contracts for services, construction, and development have a major minority supplier diversity component and goals; provide that universities and research institutes demonstrate that they are committed to diversity in their staffing and contracting as a condition of applying for Proposition 71 grants, loans, and contracts; and create a competitive environment in which the ICOC demonstrates that its research and achievements are not limited to areas or diseases of interest to non-minority Californians.
The Greenlining Institute has asked to appear before the ICOC to provide presentations from minority stem cell research and health experts to broaden the knowledge of the ICOC concerning these issues and to compensate in part for the lack of minority representation on the ICOC, and to raise the issue of diversity in contracts and hiring in the ICOC, Institute, and organizations applying for funding.
In its letter, the Institute notes that the 29-member ICOC has only four minority representatives and that only two of the first nine employees of the Institute are minorities. The letter also notes lack of diversity in the staffing and appointments within the University of California.
Finally, the letter notes that the California Public Utilities Commission has a formal supplier diversity program which has been in effect for 15 years and has withstood court scrutiny. The letter notes that under the program the typical public utility in California provided more than 15 percent of its contracts in 2004 to minority-owned businesses, and that it should be considered as a model by the ICOC.
A March 4, 2005 letter from the Greenlining Institute to the Committee makes specific recommendations for the ICOC to address disease disparity and diversity goals, among them:
Recommending that the ICOC and the Institute set 15–25 percent minority contracting goals and report annually on their achievements.
Requiring that contractors seeking contracts of $100,000 or more set forth their supplier diversity programs and achievements.
Informing potential contractors that supplier diversity will be a major factor the Institute and ICOC will consider in awarding contracts.
Securing from every University of California campus or other university that wishes to submit proposals for funding their supplier diversity data, broken down by race, ethnicity, and gender.
Recommending that the Chairperson and President create a major supplier diversity department.
The Committees may wish to ask what goals or processes the ICOC has adopted, or intends to adopt, to address disease disparity issues and to ensure diversity in hiring, appointments, and contracting related to Proposition 71.
Auditing and Public Accountability Issues
Although Proposition 71 requires the Institute to issue an annual report of its activities, commission an annual independent financial audit of its activities, and provides for review of those annual audits by the State Controller and an appointed Citizen’s Financial Accountability Oversight Committee, the auditing provisions appear to fall short of what would be contained in a “performance audit” that an auditing body such as the General Accounting Office or the State Auditor would apply. The State Controller’s Office in particular cites an Attorney General’s opinion stating that under the terms of Proposition 71 the annual audit commissioned by the Institute must be a financial audit, i.e. an audit that examines the flow and use of funds and assures that all funds are accounted for.
The State Controller recently presented to the ICOC suggestions for augmenting the audits that it commissions, including suggestions derived from examining the auditing that is currently done of similar scientific grant making organizations such as the NIH. These recommendations also appear to fall short of what would be contained in a performance audit. As defined by the General Accounting Office, a performance audit would include issues such as program effectiveness and results, cost effectiveness of activities, and compliance with legal or other requirements.
SB 18 (Ortiz) requires the State Auditor to conduct periodic audits of the Institute and the ICOC, with the initial audit required by March 31, 2006. The bill requires the State Auditor to provide to the Chairs of the Senate and Assembly Health Committees and to the Joint Legislative Audit Committee an analysis of the auditee’s implementation of its recommendations no later than December 31, 2006, and provides for further audits if the results of the analysis warrant further inquiry. The bill provides that the audits be performance audits and include all of the following:
A review of the strategic policies and plans developed by the Institute and committee.
A review of contracts and grants executed by the Institute and the ICOC.
A review of the policies and procedures put in place by the Institute and the ICOC regarding treatment of intellectual property rights associated with research funded or commissioned by the Institute.
A review of the decisionmaking procedures and policies adopted by the Institute and the ICOC, including procedures for open public meetings and disclosure of conflicts of interest on the part of the ICOC and working group members.
A review of medical and ethical policies and standards adopted by the Institute and the ICOC for research funded or commissioned by the Institute and the ICOC.
The Committees may wish to ask how the ICOC intends to implement the auditing requirements in Proposition 71 and how the Controller intends to review them.
The Committees may also wish to ask whether the more comprehensive auditing requirements contained in SB 18 would serve public accountability purposes by enabling the State Auditor to examine Institute contracts and agreements and the processes by which they are reviewed and decided on by the Institute and ICOC.