Wednesday, September 26, 2007

The Cost of 'Lubricants' for Stem Cell Financing

So the California stem cell agency wants a little loan? Maybe not so little. Only a piddling $250 million.

Well, to do that sort of business doesn't involve chump change. First there is the interest, let's say about another $250 million, give or take roughly $10 to $20 million plus or minus. The actual interest cost will not be known until Oct. 5, the day after the stem cell bond sale. (For those of you who have been locked into a microscope for decades, a bond is a loan. California says give us $250 million, and we will pay you back later with interest.)

Then there is the lubricant to make the financial wheels turn smoothly. That's roughly another $1.6 million. That may seem like a lot but it is less than what CIRM estimated a little while back in its strategic plan. That document calculated bond issuance costs at roughly 0.08 percent of the bond amount. In other words, about $2 million for a $250 million bond sale.

We asked Tom Dresslar, a spokesman for the state treasurer's office, which handles the bond sales, about the transaction costs of doing such business. He told us that final figures for the stem cell bond sale will not be available until after it takes place, he provided us with estimates of the costs on the October sale.

Here is his breakdown:
"Total -- Approximately $1.6 million

"Bond counsel and co-counsel -- $175,000

"Tax counsel -- $117,000

"Rating agencies -- $142,000

"Underwriting fees -- $818,000

"Various other costs comprise the balance."
Obviously it would be cheaper to fund stem cell research straight from tax revenues, with no borrowing, because there would be no interest or transaction costs. But that would mean navigating – ANNUALLY -- the treacherous shoals of the legislature – not to mention the governor's office. And the research would have to compete against demands for money for schools, police, firefighters and much, much more. It doesn't take a political wizard to figure out who wins in that contest.

(Editor's note: An earlier version of this item described the transaction costs as benchmarks for a $250 million bond sale. They are actually estimates of the costs on the stem cell bond sale.

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