California's Bond Sale Suspension, Stem Cells and Cutbacks

Simmering beneath the surface of California's financial crisis is the possibility that the state's $3 billion stem cell agency could become a victim, waylaid as state leaders look for more ways to cut state spending.

Lawmakers and others are discussing the likelihood of a continued suspension of sales of state bonds, which are the lifeblood of the $3 billion California stem cell agency. Without the funds from the bonds, the agency has no cash for its ambitious grant programs.

Currently CIRM has enough money on hand to last roughly through June 2012 in support of existing programs, according to its top officials. But the state has suspended sales of bonds through the middle of this year. Already, the state is forking over to investors $5 billion a year in interest for all its bonds, a figure that has skyrocketed in recent years. The interest cost to California taxpayers for CIRM is roughly $200,000 a day for the $1 billion the agency has borrowed so far.

Should sales of bonds, which take months to arrange, be resumed in a timely fashion, CIRM would not be affected. However, without the certainty of cash coming in, the agency would likely delay, as a minimal response,  additional grant rounds and loans, interrupting its efforts to transform stem cell into cures.  In January 2009, CIRM directors made a move along those lines when they were surprised by a financial crunch. More drastic measures might be required if bond sales are delayed for a lengthy period.

Proposals to prolong the suspension of bond sales surfaced during budget debate in the legislature last week. In February, the state's legislative analyst also said halting bond sales was one on a list of moves that could meet the $26 billion state budget shortfall if tax extensions were not approved in June by voters. Efforts to place such a measure on the June ballot have come up short in Sacramento.

Complicating the issue is the possiblity that a ballot initiative on tax extensions would be placed before voters in the fall. The Sacramento Bee reported yesterday that Gov. Jerry Brown is considering such an effort and could announce it this week. That would raise the need for additional cuts this year in the state spending. Deferring sales of state bonds could be a relatively politically painless way of saving some money. ($248 million was the estimate for a six-month suspension.)

The possibility of a bond delay comes after CIRM Chairman Robert Klein in December warned the agency's governing board that it was "essential" that the agency quickly provide assurances of "reliabity of our funding."

He said,

"Recent applications for clinical trial rounds and the acceleration of our funding commitments on our other programs require an immediate focus on this issue, given there may not be another opportunity until late 2011 to authorize additional bond funding.”

Klein added that “our collaborative funding partner nations” would require early this year “assurances of our future performance.” 

All of the discussion concerning further delays in bond sales is cloaked in the sometimes murky politics of Sacramento and could change suddenly – for better or for worse. Nonetheless, it would behoove CIRM directors to begin examination of their possible responses if bond sales should be substantially delayed this year and next.