Text of the Halpern Letter

Here is the text of Charles Halpern's letter:


To Members of the California Stem Cell Research and Cures Finance Committee
Dear Chairman Angelides and Committee members:
The California Stem Cell Research and Cures Finance Committee
(“the Committee”) plays a critical role in the structure of Proposition 71. It is charged by Section 125291(a) to “determine whether or not it is necessary or desirable to issue bonds authorized pursuant to this article…and, if so, the amount of bonds to be issued and sold.” In other words, the Committee has gatekeeper responsibility -- deciding when and if bonds will be issued, and in what amounts, based on its determination regarding necessity and desirability.
The “necessary or desirable” determination is particularly important in this instance because the Treasurer, the Controller, and the Finance Director are the only officials answerable to the electorate who have a role in overseeing the expenditure of public funds by the California Institute for Regenerative Medicine (CIRM). The voters who supported Proposition 71 expect that no bonds will be issued until the Committee has concluded that it is necessary and desirable to do so, after giving careful consideration to the justifications offered by the Independent Citizens Oversight Committee (ICOC).
Remand to ICOC to make the case that issuing $200,000,000 in state bonds is necessary and desirable
In this case the ICOC has given the Committee no factual basis to support the conclusion that it is “necessary or desirable” to issue $200,000,000 of bonds at this time. The ICOC does not have a plan for spending such money and has no criteria for making grants or monitoring the uses of the bond proceeds. As of today the ICOC has not even adopted an operating budget, though it has been hiring and incurring expenses for four months. The CIRM has sufficient funds to continue operations until November.
This is not a typical bond issue, where a highway has been planned and designed in detail, and the bond proceeds are necessary to buy concrete and begin construction. In this case, no one knows where the bond proceeds will go. For example, ten percent is earmarked for capital construction. Where will the buildings be? Will the state’s participation be debt or equity? How will the state be assured that the buildings will only be used only for Prop. 71 purposes, and for how long? Moreover, since Prop. 71 grants are not limited to stem cell research, bond proceeds could be channeled into any as yet unspecified medical research that seems promising to the members of the ICOC.
The statutory context indicates that the terms necessary and desirable should be read in the conjunctive, but matters of close interpretation are unnecessary in this case. The ICOC has not submitted any information to the Committee to support a conclusion that the issuance of $200,000,000 is either necessary or desirable. Oral assurances made by Mr. Klein or the other Committee members who also serve on the ICOC cannot substitute for ICOC policy and factual presentation, and do not constitute a basis for an informed Committee judgment.
This Committee does not meet its statutory obligation by presenting the ICOC with a blank check for $200,000,000, to be repaid over thirty years by the state’s taxpayers . The Committee’s decision is not a technical matter, of interest only to experts in public finance and bond traders. It goes to the core of government accountability.
The oversight responsibility of this Committee is especially important in light of the recent unanimous vote of the state Senate Health Committee putting forward a Constitutional amendment to strengthen the accountability of the ICOC process. (See SCA 13.) Ten Senators across both parties voted their belief that the present governance system provides inadequate oversight and needs strengthening, In light of this legislative concern and commitment to crafting a stronger governance structure (a time-consuming referendum process), the Committee must be particularly attentive to its statutory oversight responsibility under the present Prop. 71 governance scheme.
I request the Committee to remand the matter to the ICOC to give it an opportunity to deliberate on its resolution requesting the issuance of bonds in the amount of $200,000,000, and to present a justification for that number along with a plan for its grant-making program over the next year. If no such plan is forthcoming, the Committee should authorize no more than $25,000,000 in bond sales, to permit the CIRM to continue to develop a grant-making program.
Revising the Agenda-- Pending litigation on the Constitutionality of Proposition 71
The Attorney General has represented to the Supreme Court of the state, in the name of the ICOC, that these bonds will be unsalable, or salable only at higher interest rates, so long as litigation is pending. Litigation is still pending. The Committee must review this issue in open session prior to voting whether to issue bonds at this time, not at the end of the meeting in connection with the possible filing of bond validation lawsuit. It is hard to imagine that it is “desirable” to issue a large amount of bonds under such circumstances. There must be a public explanation and an opportunity for public comment. According to the San Francisco Chronicle, the Attorney General has not changed his opinion.
The circulated Agenda, which indicates that the Committee will vote to issue the bonds at the outset, before considering the pending litigation, should be revised.
The alternative financing program
It should be noted that tantalizing press reports in recent weeks have suggested that Mr. Klein has a secret plan to finance Prop. 71 without selling bonds. This morning the CIRM has posted on its website a notice that it is working with state officials “on an interim financing program that does not use state funds. This will be discussed at the May 9 Finance Committee.” This alternative financing program has never been discussed by the ICOC in an open meeting, and it does not appear on the Agenda for tomorrow’s ICOC meeting.
In light of the California commitment to open process, raised to constitutional status by the voters last November in Prop. 59, this is a startling announcement. Needless to say, the discussion that the CIRM promises at this Committee’s meeting on May 9 would be in clear violation of the Bagley-Keene Open Meeting Act .
Conflict of Interest
The Prop. 71 process has received much critical scrutiny around the issue of conflict of interest, from the Senate, the press, and from nonprofit groups. Therefore, in order to reassure the public on this critical matter, it is especially important that this Committee be as free of conflict of interest as is possible. In that respect, the substantial campaign contributions made by Mr. Klein to Mr. Angelides ($19,000) and Mr. Westly ($27,000) for their 2006 campaigns present a problem. The public must have confidence that the members of the Committee are each acting with full autonomy, without gratitude for past gifts or expectations of future ones.
In order to bolster public confidence I urge that the two campaign contribution recipients—Angelides and Westly-- return past contributions to Mr. Klein and commit to accept no more contributions from him or any other member of the ICOC so long as the Committee continues to function. These steps would help to avoid even the appearance of conflict of interest and reassure the public that the Committee members are single-mindedly committed to protecting the interests of the public and that each member is wholly independent in his judgments.
Conclusion
For the reasons set forth herein, I respectfully request the Committee to:
Remand this matter to the ICOC for reconsideration with the request that the ICOC submit a record to the Committee which it considers sufficient to support the conclusion that the issuance of bonds in a particular amount is “necessary or desirable.”
Review in an open meeting, prior to authorizing the issuance of any bonds or other debt securities, the impact of the pending litigation on the sale of bonds, in light of the representations made to the Supreme Court by the Attorney General on behalf of the ICOC.
Address the problem of conflict of interest on the Committee, allowing an opportunity for public comment.
Revise the Agenda appropriately.
Set a time for discussion of the alternative non-bond financing plan with appropriate advance notice and preparation.
Respectfully submitted,
Charles Halpern
Charles Halpern was elected to membership in the Institute of Medicine of the National Academy of Sciences in recognition of his work as a public interest lawyer practicing at the intersection of medicine, biomedical ethics, and public policy. He was a Professor at Stanford and Georgetown Law Schools and Dean of the City University of New York Law School. As Founding President of the Nathan Cummings Foundation, he administered a substantial grants program in the health field.an He has been an active public participant in the administration of Proposition 71 since its passage. With Dr. Philip Lee, he filed a petition with the ICOC requesting attention to conflict of interest problems, public access issues, and other governance matters.