Thursday, February 19, 2009

Who is on the Hook for $400 Million in Stem Cell Science?

An anonymous reader has posted a question on the "California budget mess" item, asking about who will pay back the $400 million in bonds that CIRM is seeking to sell privately to support its operations. We suspect some other readers may have the same question, so we are responding here.

But first, let's rephrase the question in more straight forward language: Who is going to pay the $400 million that the state stem cell agency is seeking to borrow privately?

The answer is the state of California and its taxpayers. The bonds are, in fact, loans to the state and become the "general obligation" of the state. They are no different than general obligation bonds that are sold by the state to execute other projects. The bonds do not rely on CIRM to generate revenue to pay them off. The state cannot declare bankruptcy, according to a briefing for CIRM directors last month. Thus investors would seem assured of earning a return at some point. Income from the bonds is also exempt from California taxes but not federal taxes, making them favored investments for California-connected persons and enterprises.

The state has "placed" only $250 million of the $3 billion in bonds authorized to be sold on behalf of CIRM. That initial round of borrowing was the first time ever that general obligation bonds have been used to "finance the development of intellectual capital," according to the state treasurer's office. Generally bonds are used to build roads, hospitals, housing and other "hard" assets.

Here is a rundown from the state treasurer's office on California bonds that should answer nearly all questions about the nature of the devices.

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