Tuesday, May 10, 2005

The Bridge to Three Billion Dollars

A web site in India the other day carried an item on the California stem cell agency. The motto of the web site is “It's All About Money, Honey.”

The stem cell agency itself has three billion reasons why that should be its motto as well.

With its bonds ($3 billion worth) under a financial cloud because of litigation, the agency is now facing substantial increased costs because of its bridge financing proposal.

During a packed meeting Monday in which opponents were critical of the agency's financing plans, the California Stem Cell Research and Cures Finance Committee approved the $200 million plan to issue short-term bond anticipation notes, according to reporter Carl Hall of the San Francisco Chronicle.

They “would fill the financing gap at least for a while, allowing the program to move forward until the lawsuit is resolved,” Hall

“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.”

Hall said that “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.”

State Treasurer Phil Angelides, who has responsible for issuing the state bonds, chaired the meeting. In a joint
statement with California Attorney General Bill Lockyer, Angelides said, “We are concerned that a few, narrow anti-choice interests are attempting to thwart the will of California’s voters, who voted decisively to make funding available for this important research. With today’s decision by the Stem Cell Research and Cures Finance Committee, we will do everything possible to implement the voters’ desire to fund research that will help people suffering from debilitating diseases.”

Angelides indicated he would hold more hearings within a month or so to consider the bond anticipation notes and their interest costs.

Charles Halpern, a Berkeley attorney and former law school dean, told this blog following the meeting, “Klein had said that he intended to discuss his alternative financing plan at today’s meeting. Angelides steered the discussion away from this because of the Bagley-Keene (public notice) problem.

“It was unclear whether Klein has in mind passing the hat for charitable contributions, or trying to actually sell bond anticipation notes —BANs— in the commercial bond market with a high interest rate to reflect the extra risk that investors will be shouldering. Very confusing and Tom Campbell’s surrogate abstained on the vote about BANs because it seemed premature.”

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,” Hall wrote.

Klein said in a statement he is working with other state officials to “look at alternative structures for bridge financing by charitable donors or other funding methods and to come to a consensus decision on the best way to ensure funding for the Institute while access to the critical research funding approved by California voters is temporarily blocked by groundless lawsuits.”

Here are links to other stories on Monday's meeting: Alexa Bluth, The Sacramento Bee; Sandy Kleffman, Contra Costa Times; Paul Elias, The Associated Press; Andrew Pollack, New York Times.

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