CIRM Going With Taxable Bonds on its Private Sales Plan

This item is part of the continuing coverage today of the board meeting of the California stem cell agency based on its audiocast.

The California stem cell agency is planning to offer taxable state bonds, as opposed to tax exempt instruments, in its effort to shore up its critical financial situation and avoid running out of cash next fall.

Normally the state issues tax exempt general obligation bonds, which would carry lower interest rates than taxable bonds. The interest is a cost to the state.

However, CIRM Chairman Robert Klein said that he did not believe that the state would lose out financially because of the use of taxable bonds. He said CIRM will be dealing with individual purchasers as opposed to a broader market. He said the bonds will also meet program needs of potential purchasers such as charitable foundations.

In fact, Klein said, "We may well have less than a market rate interest."

He estimated that the bonds would have an interest rate of 5 to 5.5 percent, a figure that is attractive under current market conditions. He also said that the bonds could be repackaged in a few years, taking out the tax exempt projects and reissuing bonds for them separately.

Klein said that "going taxable saves us time" and avoids possible legal challenges, plus they can be sold to a larger range of customers.

Klein's statements on the use of taxable bonds came in response to a question from John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca.

Simpson also asked about the size of the legal fees involved in the sale of the bonds for CIRM. His question came after Klein said that CIRM's efforts have involved a goodly number of lawyers from other state agencies as well as CIRM and will continue to do so.

Klein said he plans to have a workup of costs associated with the private placement plan ready for the April meeting of the board. He said it is hard to estimate because the private placement plan is "unprecedented" in "our lifetimes."
Klein is a lawyer, but said he does not practice law and has no financial interest in any law firms.

In other matters, Klein acknowledged the presence of Art Torres at the Sacramento meeting. Torres is one of the candidates for the vice chair's job. Duane Roth, a current board member, is the other candidate.

The board is now in executive session.