So says the state's legislative analyst in a financial analysis of a proposed ballot initiative that is likely to be on next November's ballot. The measure would provide $5.5 billion more for research awards to California scientists by the California Institute for Regenerative Medicine (CIRM), as the state stem cell agency is formally known.
The increase in the price tag is caused by the fact that the $5.5 billion would be borrowed money -- bonds that would be issued by the state. The legislative analyst estimated that the interest costs could total $2.3 billion, bringing the actual expense to taxpayers to $7.8 billion.
Significant caveats exist, however. The legislative analyst, who prepares these sorts of analyses for all ballot measures, cautioned that the $7.8 billion estimate could rise or fall depending on how interest rates rise or fall. Another unknown involves the length of the payback period.
What the legislative analyst has to say is a significant matter for the proposed initiative, whose success will determine the financial survival of the agency. CIRM is running out of cash. It was funded by voters 15 years ago with $3 billion. If the proposed initiative fails, CIRM will wither away over the next two to three years.
Should the initiative qualify for the ballot, the seven-page financial overview of the measure would be delivered, via the state's official voter's guide, to about 20 million California voters prior to the election. The overview would also serve as the basis for news stories in virtually all of the media, which is always looking for bottom line figures.
Beyond the interest costs, the analysis carried other financial bits of interest. It said that over an initial, five-year period the agency would use some the bond proceeds to pay the interest on the money it is borrowing. The analyst said,
"Were the state to begin issuing bonds shortly after approval of the measure, CIRM would likely make interest payments totaling in the low hundreds of millions of dollars from bond proceeds by the end of 2025."The proposed initiative also places a 6.5 percent cap on total funding for certain operational expenses including administration and grant oversight. Other changes would give more freedom to the agency, which originally had a 50-person cap on staff. That cap was later removed by state legislation. The new initiative would set the cap at 70 with a provision for more employees beyond that number, under certain conditions involving, among other things, compensating them with cash raised privately.
The new initiative stipulates that the agency improve access to stem cell therapies, funding that effort with up to 1 percent of the $5.5 billion, a change from the current law involving CIRM. Other changes from the current situation: 1.5 percent for starting "community care centers" for new clinical trial sites, $1.5 billion for research into brain and nervous system diseases and up to 0.5 percent for a shared lab program.
Royalties from any therapies financed by CIRM research would go to the agency and not the state general fund, as currently is the case. So far, royalties have totaled only about $200,000. Larger amounts are likely to appear in the next decade as the therapies emerge from the research that was financed years ago.
Regarding possible savings as the result of more cost-effective therapies, the analysis said,
"To the extent the measure results in new treatments that are more cost-effective than existing treatments, state and local governments could experience savings in some programs such as Medi-Cal, the state’s subsidized health care program for low-income people. The magnitude of these and other indirect effects is unknown."The stem cell agency, which was created by voters in 2004, has yet to finance research that has led to stem cell treatments that are approved for general public use.
In 2004, the legislative analyst prepared an interest cost estimate of $3 billion on the original amount for awards, also $3 billion. However, the projections did not anticipate the recession of 2008, which resulted in a long-term drop in interest rates. Today, the interest on the original $3 billion is expected to be about $1 billion.
Here are links to more information on proposed initiative and related matters:
The state-funded research program made some sense as a statement of resistance to Bush's arbitrary ban. With that ban over 10 years dead now, what is the argument for the state to spend so much money when the NIH and other national agencies can allocate funds across all health research areas based on their level of promise, and when California has so many other urgent spending priorities?
ReplyDeleteMinivet--Thanks for your comment regarding the justification for continued funding of the state stem cell agency when federal funds are now available. I suspect Americans for Cures would have an ample response. I don't take a position on the proposed initiative, but the general argument is that the feds are doing something different than what is happening in California, which is trying to develop a real product. The NIH, on the other hand, is fundamentally involved in basic research. Additionally, the argument goes, the federal government bends to political winds and Congressional control. Trump cannot be trusted to fund stem cell research is one strong view. The California agency is isolated from state government oversight, which can tie up long-term research in short-term political games. And so forth. I will query Americans for Cures (Bob Klein's group) to see if they would like to elaborate. Thanks again for your comment. David
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