Tuesday, January 11, 2011

California Stem Cell Agency Says It Unaffected by Suspension of State Bond Sales

Suspension of California bond sales because of the state's budget crisis will not have an “immediate impact” on the state's stem cell agency, whose only real source of cash is state bonds.

James Harrison, outside counsel for the CIRM board, said that the agency “has cash reserves to cover its current needs and it does not need to issue bonds in the spring.” As recently as December, other CIRM staff members had also said that the agency had funding to cover its programs to about June 2012.

However, on Dec. 14, CIRM Chairman Robert Klein told agency directors that the reliability of the agency's funding needed “immediate attention” because of a notice that his office had “just” received from the state treasurer. Klein also said that “our collaborative funding partner nations” early this year will require “assurances of our future performance.” His warning came on the eve of his successful bid for re-election as chair and was much different than a rosy assessment he offered 12 days earlier. .

Here is the text of Harrison's response to our query to Don Gibbons, CIRM's communications chief, concerning the impact of the bond sale delay on CIRM. In his comment, Harrison refers to earlier items on the California Stem Cell Report about Klein's changing positions on the state of CIRM's bond financing. Some of those items can be found here, here and here.

Harrison's statement:
“As we have stated in the past, we disagree with your characterization of Chairman Klein's comments to the Board.  At the time of the Treasurer's request, CIRM had no authority for the Treasurer to issue bonds on CIRM's behalf.  The Chairman therefore considered it a priority to respond to the Treasurer's request in light of CIRM's projected need for additional bond funding for the 2011/2012 fiscal year.  You are confusing the Chairman’s desire to get a required authorization approved (before he left the agency) that could cover any bonds sold in 2011 or 2012.  As the Chairman previously reported, the agency has cash reserves to cover its current needs and it does not need to issue bonds in the spring. CIRM therefore did not request bond funding as part of a Spring 2011 bond sale, and as a result, the Treasurer's decision not to go to the market in Spring 2011 does not have an immediate impact on CIRM.”
For those interested in more details about CIRM's borrowing, as of last November, the state owed about $2 billion on stem cell bonds, including $1 billion in principal and about the same amount in interest, according to the state treasurer's office. Payments on the interest come out of the state budget each year and affect the amount of cash available for other state expenses, ranging from education to health services for the poor.

Prop. 71, which created CIRM in 2004, authorized $3 billion in bonds that flow directly to CIRM and cannot be touched by the governor or the legislature. The borrowing is expected to cost another $3 billion to $4 billion over the lifetime of the bonds.

A special, six-person committee, the California Stem Cell Research and Cures Finance Committee, is charged with determining by majority vote whether it is “necessary or desirable” to issue bonds for stem cell research. Three members of the CIRM board of directors, including Klein, sit on the committee. The other three members are the state treasurer(who is the chairman), the state controller and the state finance director.

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