Monday, July 11, 2011

Politics and the Price of Defiance

The California stem cell agency last month had a bit of instruction in politics when directors chose a new chairman.

Both California Gov. Jerry Brown and state Treasurer Bill Lockyer made an extra effort – beyond their nominating letters – to assure the election of their man, Jonathan Thomas, a Los Angeles bond financier, as chairman. We noted a few days ago that such episodes are not uncommon when an enterprise is reliant on public funding.

Implicit in some of the lobbying by Brown and Lockyer was the likelihood that failure to follow their lead could endanger bond funding for CIRM.

Some might think that possibility was remote, that Tamany Hall tactics are just a part of the past. Those who favor that view might want to consider the case of Democratic Assemblyman Anthony Portantino. He voted no on the recently passed state budget in defiance of legislative leaders in his own party.

Now he is being punished. His staff is being sent home for a month of unpaid leave, and he is being threatened with a cutoff of both his mail service and office supplies, according to The Sacramento Bee. Such are examples are not uncommon in California politics in one form or another.

It is something to think about as readers ponder the wisdom of CIRM directors in electing Thomas as their new chairman. Sphere: Related Content


  1. Anonymous3:05 PM

    There is a bit of schizophrenia here. On one hand, the ICOC and CIRM has been heavily criticized for not being accountable to elected officials and now they are being taken to task for listening to very recently elected and re-elected officials. Governor Brown was elected by a healthy majority in an highly competitive election. Is he not now responsible for the State?

    Further, one can imagine an elected official looking at the agency and recognizing that, with Klein gone, there is no sophisticated financial expertise on site. The VP for administration is gone, there is no director of finance yet. Would you not want someone in charge of agency giving out a couple of hundred million or more a year and with a portfolio of over a billion dollars to have solid financial expertise?

    This really does seem like a bit of a cheap shot. It does not seem to matter whether one listens or doesn't listen to elected still gets bashed.

  2. Re anonymous' comment, he has a good point. CIRM gets bashed from all sides depending on the point of view from which they are coming. As for our point of view, we do not know yet whether Thomas' election is a good one or a bad one. Not much is genuinely known publicly about him or the rival candidate. Most of the election process was held behind closed doors. We have not taken the board to task for its choice. Rather we have noted its impact in the media and its political consequences. CIRM is isolated from the normal budgetary process because of Prop. 71 and benefited, in many ways, substantially from that. One can't criticize the board for that isolation. It was dictated by the terms of Prop. 71. But that isolation, at least in part, led directors to a position that a $400,000 salary that outraged the public was apparently inconsequential in terms of CIRM's future. Does CIRM need in-house bond expertise? Probably not. It can easily be hired from the private sector or found in the treasurer's office. Does CIRM need somebody with financial(meaning budgetary) expertise. Yes, and it has been missing for years, reflecting on poor leadership in that area at the top, including the board.

    As far as the "defiance" item above goes, I would suggest that its take-home message is that the board may have made a very good choice if one believes that the state would move slowly on the sale of CIRM bonds with a chairman other than Thomas.

  3. Jim Fossett10:12 AM

    I'd agree with anonymous and argue a bit with your contention that CIRM doesn't need in-house bond expertise-- trying to buy expertise from the private sector would cost way more than $400k and probably trigger another round of journalistic complaints that CIRM was spending too much on something. In similar fashion, it's the Treasurer's job to oversee the finances of the entire state government, not provide specialized advice to one agency. As you've reported, state Treasurer Bill Lockyer was one of Thomas' strongest advocates. Finally, it will be remembered that Robert Klein also had a strong background in bond finances, stemming from his experience in real estate development. This specialized expertise came in handy when CIRM was being challenged in the courts and Klein was able to arrange for the sale of Bond Anticipation Notes (BANS) under terms favorable to the state.

  4. Jim -- Frank Litvack, the other candidate for chair, in his last presentation to the CIRM board, said there is little mystery in state bonds. He noted that he had raised hundreds of millions of dollars in financing for businesses that were not backed by the full faith and credit of the state of California. That is a much more difficult task than selling state bonds. As the former CIRM Chairman Robert Klein has noted, the state cannot default on its debt. Businesses can, raising more concerns from investors than making almost no-risk investments in California bonds. Several CIRM board members nodded in agreement as Litvack spoke.

  5. Jim Fossett7:12 AM

    I'd have to argue a bit. Municipal finance has gotten a lot more complicated than it once was, as both state and local governments have started borrowing money on far more complicated terms than plain vanilla general obligation bonds. We've been doing all kinds of variations on revenue bonds here in New York for years, and places in California have probably been doing the same.As you've noted, CIRM may have considerable political trouble getting another bond issue approved when the current one runs out and may have to get more exotic if it wants to keep going.

  6. Good points again from Jim. The only way we are going to know for sure, however, is to await the events of the next few years.