Next Action on Stem Cell Agency Budget on June 5

Final decisions on the proposed, $18 million operational budget for the California stem cell agency has been delayed until some time in June in order to give the agency 's new president, Randy Mills, time to put his mark on it.

The governing board's Finance Subcommittee has scheduled a meeting for June 5 to re-examine the plan. The panel took a first look at it earlier this month. Following action by the subcommittee, the spending plan will go to the full board. No date has been set for that session.

Details of the new version of the budget are not publicly available. When they are posted on the agenda for the June 5 meeting, they may give some sense of Mills' priorities.

$17.9 Million California Stem Cell Spending Plan to be Scrutinized by New CEO

The new president of the California stem cell agency, Randy Mills, will take a crack at the agency's proposed, $17.9 million operational budget before sending it to directors for approval later this month.

The budget represents a 9.5 percent increase over estimated spending for the current fiscal year, which ends June 30. Mills has not yet had a chance to put his stamp on it. He was appointed as CEO of the agency on April 30. He will assume his responsibilities on Thursday.

The spending plan was examined this afternoon by the CIRM directors' Finance Subcommittee, which is chaired by Stephen Juelsgaard, former executive vice president of Genentech. It was Juelsgaard's first meeting as chairman of the panel, and he systematically sought explanations for a number of items that had large dollar or percentage increases.

The budget did not come to a vote by the committee. Juelsgaard said it needed a review by Mills to see if he wants to make changes prior to submitting it to the full board May 29. Mills has given no public indication of whether he might make substantial changes in the agency's operations. 

There was little discussion of a new, $600,000 item in the agency's budget for rent costs beginning in November 2015. The agency loses its free office space Oct. 31, 2015, and is facing the task of finding a new headquarters in a sizzling office market in San Francisco. However, it was noted that the $600,000 figure could change as CIRM becomes more deeply enmeshed in a search for new space.

Currently the agency has 19,500 square feet for 56 employees. The value of the current lease was placed at $1.2 million annually as of June of last year.

Asked earlier today about assumptions in the $600,000 figure, Kevin McCormack, senior director for public communications, replied,

“The assumptions for the $600,000 are that we will have a smaller space in a less trendy neighborhood, and while it would be lovely for employees to get free parking, it's not something that we are counting on.”

Parking in San Francisco is scarce and expensive. The public parking lot in the CIRM building charges $3.00 for every 20 minutes for ordinary customers.

During the examination of the budget, Juelsgaard raised questions about which expenses fall within the legal cap on operational spending. By state law, CIRM can spend no more than 6 percent of its grant total on its operational budget with the exception of legal expenses.

Juelsgaard and Jeff Sheehy, another CIRM board member, both questioned whether spending for BayBio and Biocom, biotech industry organizations, could be justified as legal expenses and thus be exempt from the limit, according to the terms of Proposition 71. That measure is the 2004 ballot initiative that created CIRM. The staff indicated those expenses would be moved out of the budget for the legal office and into another area.

Sheehy said that if CIRM has, in the past, placed such spending in the "legal" category it should retroactively correct that. Legal expenses for the coming year are budgeted at $1.9 million, including $711,200 for outside contracting, compared to $2 million for the current year. 

Juelsgaard also asked about expenses in a category called “reviews, meetings and workshops,” which totals $2.5 million. It is the second largest spending category in the budget, falling behind compensation, which is expected to total $12.1 million.

The category includes $300,000 for a conference involving hundreds of CIRM grantees. The agency did not stage such a conference last year, but has in previous years. The CIRM staff also noted that grant review meetings can cost up to $150,000. Some of the closed-door sessions last two days. All of the scientific reviewers are scientists from out-of-state, including some from overseas. The agency has nine reviews scheduled for the coming year.

Today's budget session involved new figures for the estimated spending for the current year, which alters the budget increase reported in an item Friday on the California Stem Cell Report. The earlier increase was based on calculations based on what then were the latest CIRM estimates for its current spending.

California Stem Cell Agency Budget Up 10.5 Percent

The California stem cell agency this week proposed a $17.9 million operational budget for the coming fiscal year, roughly a 10.5 percent increase over its current spending.

The largest expenditures in the proposed agency budget are for employee compensation, $12.1 million, up about 4 percent from current spending; grant reviews and meetings, $2.5 million, up 47 percent, and external services (outside contracting) $2 million, virtually unchanged.

The budget information on the agency's Web site was posted yesterday, only two business days before it is to be considered by the agency directors' Finance Subcommittee. The posted information did not explain or justify the increases. Nor did it contain a comparison to the agency's actual spending this year.

The year-to-year comparison was calculated by the California Stem Cell Report, based on figures that were presented to directors in the middle of March (see chart below) and those posted yesterday.
(Later information showed that the annual increase is about 9.5 percent, based on fresher figures for estimated spending this year.)

The boost in compensation is most likely tied to a slight increase in the size of the CIRM staff, which now totals 56. The largest component in the jump in the grant reviews and meeting expenses is a $300,000 meeting for the 600 recipients of the agency's grants. CIRM did not stage a grantee meeting during the current fiscal year.

The agency's operational budget does not include grants or awards for research, only the expenses for handing them out and overseeing their execution. The agency is limited by law to a budget of 6 percent of its awards, which will eventually total $3 billion. It has given out $1.7 billion so far.

The latest budget will be taken up on Monday by the Finance Subcommittee, which is chaired by Stephen Juelsgaard, former executive vice president of Genentech. It will be his first session as chairman of the finance panel. Juelsgaard has demonstrated a flinty-eyed approach to financial matters during full meetings of the CIRM governing board.

The new budget will also be the first for CIRM's new president, Randy Mills, who formally begins his job on Wednesday. However, the proposal probably does not likely to reflect any significant input from Mills, who has made his career in business. He may have proposals for changes in it after he officially begins work or perhaps even on Monday.

California Gov. Brown's State Stem Cell Spending Figures

California Gov. Jerry Brown's proposed budget contains numbers for the state's stem cell agency although he can do nothing legally about its spending, even if he wanted to.

That's because the agency was created in such a manner that neither the governor or the legislature can get their fingers on stem cell research dollars. The idea was to protect research from politics. So Prop. 71, the 10,000-word ballot initiative that created the agency, made changes in both the state constitution and state law that gave the California Institute for Regenerative Medicine (CIRM) unique autonomy.

Brown's proposed budget does cast CIRM spending in a different light than seen in the agency's budget presentations. It shows that CIRM spending is expected to rise from $213 million in 2012-13 to $293 million in 2014-15, nearly all of which goes for research awards. The agency has legal authority to tap $300 million a year from money that the state borrows and that goes directly to the agency.

The proposed budget also projects 59.5 employees at the San Francisco-based agency in 2014-15 compared to 56.7 in 2012-13. Projected operating expenses amount to $15.6 million for 2014-15, compared to a $13.8 million in 2012-13. 

Both figures are interesting in light of CIRM's figures that show that its operational budget for the current fiscal year exceeds $17 million. No reason for the discrepancy was immediately available, but we suspect it is probably a case of different methods of accounting or perhaps off-the-mark figures from the stem cell agency to the state Department of Finance, which compiles the state spending plan.

The agency operates under a spending cap of 6 percent of its total expenditures, also imposed by Prop. 71. It will run out of cash for awards in 2017 and is currently trying to devise a way to finance its future operations. Another bond issue, which requires voter approval, has not been ruled out, but most of the discussion focuses on some sort of public-private partnership at a level much diminished from $300 million annually.

While Brown cannot chip away at CIRM spending by the usual state process, the agency does take notice of his desire for sharp-eyed budgeting. A few years ago, the agency cut back on out-of-state travel after Brown announced restrictions for other state agencies.

A $2 Million Bill: Outside Contracting by California Stem Cell Agency

The $3 billion California stem cell agency this week posted a list of its outside contractors, who range from a a $25,000 stem cell licensing consultant to a $550,000-a-year law firm.

The agency expects to spend $2 million during 2013-14 on outside contracting, down from $2.9 million in 2012-13. This week's report covers the 2012-13 year.

Outside contracting is the second largest item in the agency's budget, which is slated to spend $17.4 million this fiscal year for operational expenses, up 5 percent from last year's spending. The largest amount, $12.2 million, goes for salaries and benefits. (For more on the budget, see here, here and here.)

Topping the contractor list is the law firm of Remcho, Johansen & Purcell of San Leandro, Ca., which had the $550,000 contract. CIRM, as the agency is known, reported that Remcho came in under budget by $95,595. That contrasts to some previous years when the firm, which has represented the stem cell agency since its inception, required additional cash on top of its original contract. James Harrison of the Remcho firm is its face at the agency and is designated as the outside counsel to the agency's governing board. In all, the agency is slated to spend $2.2 million on legal expenses, including in-house work.

David Earp is the stem cell licensing contractor. He was paid only $13,125 on his $25,000 contract during 2012-13. It is unclear whether he will be paid the $11,875 balance. Earp was chief patent counsel and senior vice president for business development for Geron before it dropped its stem cell program. Earp was heavily involved in the $25 million loan that CIRM made to Geron in 2011. In February 2008, he testified before CIRM about its then proposed loan program.

The list of contractors included $200,000 to the AlphaMed Press of Durham, N.C., as seed funding for a stem cells translational journal, $156,434 to Hyatt Hotels for the meeting of CIRM grant recipients, $250,000 to Kutir Corp. of Newark, Ca., for informational technology services and $290,000 to the Mitchell Group of Woodland Hills, Ca., also for information technology services.

The list of contractors will be presented to the CIRM governing board at its meeting next week. The list does not usually trigger any significant discussion.

California Stem Cell Agency Budget Up 4.6 Percent, Topping $17 Million

During the past couple of years, the California stem cell agency has vastly improved the way it budgets the relatively tiny amount it spends on operational expenses.

At one point a few years back, its operational budget was often all but incoherent to the public and to at least some members of its governing board. (See here, here and here.) But times have changed. The process for its operational budget, which amounts to about $17 million for the 2013-14 fiscal year, is now more transparent and better organized.

The long overdue improvements can be credited to the hiring of Matt Plunkett in December 2011 as its first chief financial officer in its eight-year history, as well as the efforts of CIRM directors Michael Goldberg and Marcy Feit. Goldberg, a venture capitalist, is chairman of the board's Finance Subcommittee and Feit, CEO of Valley Healthcare in Pleasanton, Ca., is vice chair. Plunkett, however, left the agency suddenly last summer and the agency has no plans to replace him. CIRM Chairman J.T. Thomas says Plunkett put new financial systems in place that can be operated without a CFO.

Interested readers can get a glimpse of what is upcoming for CIRM spending beginning in July in documents prepared for the Monday meeting of the governing board's Finance Subcommittee meeting. The agenda, however, lacks a much-needed explanation and justification for the spending. All that is presented now for the public are raw numbers and a PowerPoint presentation, which is no substitute for a nuanced, written overview.

Nonetheless, here are the basics. The budget proposed for 2013-14 stands at $17.4 million, up 4.6 percent, according to California Stem Cell Report calculations, or $771,000 from forecast expenditures for the current year. The budget represents the cost of overseeing $1.8 billion in grants and loans and preparing new proposals and reviews of applications for hundreds of millions of dollars in additional awards.

The largest budget component is for personnel – $12.1 million, up from $10.7 million. Second largest is outside contracting at $2 million, down from $2.9 million for the current year, continuing a trend away from outside contracts, which once were burgeoning.

One interesting area includes “reviews, meetings and workshops,”- which are expected to cost $1.8 million this year. Next year, they are budgeted for $2 million. Some might look askance at those sorts of expenditures for “meetings.” However, that includes the fees and expenses for scientific reviewers for multi-day meetings in the San Francisco area, which is a high cost area, and other large gatherings. However, the figure does not include travel for reviewers, who come from out of the state and even from overseas.

Examples of the meeting costs include a three-day grant review session last September at the Claremont Hotel in Oakland that cost $44,019. A two-day meeting at the same hotel for the 29-member CIRM governing board cost $34,424. (These figures and others involving outside contracts can be found on the agenda of the board's Governance Subcommittee meeting April 10.)

The agency also dissected the budget from different perspectives on expenditures. The spending plan includes $2.0 million for the office of Chairman Thomas and $1.6 million for the office of President Alan Trounson. Comparable figures for actual spending this fiscal year were not provided, however, by CIRM for the Finance Subcommittee meeting. The size of the chairman's budget reflects the controversial dual executive nature of management at CIRM, which has come under repeated criticism, including from the recent blue-ribbon report by the Institute of Medicine.. However, the arrangement is locked into state law as the result of the ballot measure, Proposition 71, that created the stem cell agency in 2004.

Legal expenses are budgeted at $2.2 million with public relations and communications running slightly more than $1 million. The scientific office, as one might expect, consumes much larger amounts, with basic research, translational research, grants review and grants administration budgeted at $4.7 million. The development side of the scientific office, which focuses on pre–clinical and clinical research, is slated for $3.4 million. The agency did not offer comparable figures for the current year.

Under Proposition 71, the agency can legally spend only 6 percent of its $3 billion in bond funding for operational expenses. At one time the agency had a 50-person staff cap, but that was altered several years ago by the legislature. The most recent figures show it has 54 employees. However, this month's budget documents did not list the number of staff for this year or next.

The stem cell agency also reported that it expects to spend an additional $1 million a year for rent beginning in 2015, when a free rent deal provided through the city of San Francisco expires. The city put together a $18 million package to attract the CIRM headquarters in a bidding war with other California cities. The agency has never produced a public accounting of whether it has received full value on the package.

The proposed budget is likely to be approved by the Finance panel next week without significant changes and then by the full board late in May.

The public can participate in the Finance meeting at two locations in San Francisco one each in Irvine, Pleasanton, La Jolla and Berkeley. Specific locations can be found onthe agenda.

October CIRM Board Meeting Moved to Burlingame

The location of the October meeting of the governing board of the California stem cell agency has been changed from Irvine to Burlingame, near San Francisco International Airport, in an effort to save travel costs.  

CIRM Chairman J.T. Thomas said the one-day meeting is being moved because the session will require the attendance of a large number of CIRM staffers who are based in the agency's San Francisco headquarters. They will be involved in presentations involving the agency's new strategic partnership fund and other matters.

The date of the meeting remains unchanged – Oct. 25. Look for posting of the agenda on the CIRM web site on Oct. 15. The site of the meeting is the Hilton Bayfront Hotel, 600 Airport Blvd.

$2.4 Million for State Stem Cell Lawyers: Too Much or Not Enough?

The California stem cell agency is spending $2.4 million a year on lawyers, a figure that one agency director has described as "awfully bloated."

More than one dollar out of every ten that CIRM spends on its operations goes for legal advice, and the subject came up at a meeting last month of a meeting of its directors' Finance Subcommittee. The issue triggered a sharp exchange revolving around a proposal to hire an additional attorney to deal with intellectual property issues.

In the next fiscal year, the agency expects to have legal team of six (four lawyers and two administrative assistants) on board out of a total CIRM staff of 60. It also has three outside lawyers or firms under contract at an annual cost of $1.1 million. Overall, CIRM is spending 13 percent of its $18.5 million operational budget on legal matters. Its budget for legal services will increase $50,000 next year.

CIRM's proposed budget includes a cut in external legal contracts to help finance the addition of another staff attorney. Elona Baum, CIRM's general counsel, is also advancing an additional proposal this month that would pay for another staff attorney indirectly through CIRM loans to business, thus avoiding problems with the 6 percent legal cap on the agency's budget.

At the April 2 meeting of the Finance Subcommittee April 2, Art Torres, CIRM's co-vice chairman and an attorney himself, vigorously questioned the addition of another lawyer. In an exchange with Baum, Torres said,

"Well, wait a minute. We already have you. We have Ian. We have Scott. We have James. What more do we need to add more to our legal services budget, which looks awfully bloated."

Baum and CIRM President Alan Trounson defended the addition of a staff lawyer. Both cited the need to protect intellectual property and promote commercialization of CIRM-funded inventions. Trounson and Baum said grantee institutions are failing to do so. Consequently, they said, the stem cell agency is "at risk."

In one exchange, Torres said,

"There are current counsels within the UC and Stanford and USC that ought to be taking care of this for their grantees."

According to the transcript, Trounson replied,

"Well, they're not – you know, this is not being taken care of in a way which is -- which is -- which is reasonable to the organization here. and I think it's putting the organization at risk...."

Baum cited an "a very in-depth" memo that she said justified hiring an additional attorney. Following the meeting, the California Stem Cell Report asked for a copy of the memo.

It consisted of a one-page job description. Dated March 5, it was written by Baum and directed to Trounson. It described the duties of the new lawyer but not the justification for hiring the person. In addition to IP work, duties including 350 hours of work to "provide increased certainty of commercialization rights," 250 hours for due diligence in the grant award process, 200 hours of work on genomics and reprogrammed adult stem cell efforts. The memo calls for 690 hours on business transactions including 150 hours to administer the loan program and 200 hours on agreements with companies seeking to relocate to California.

Much of the committee discussion focused on the need for legal expertise on IP issues, which Baum said the agency lacked.

CIRM first took a crack at hiring an IP attorney in 2008, seeking both a consultant and a fulltime staff attorney. A fulltime staffer was never hired. However, Nancy Koch was hired as an IP consultant for six months at $150,000 and has been with the agency since. Koch was deputy general counsel of Chiron Corp. and its successor Novartis Vaccines and Diagnostics, Inc. During 11 years at Chiron/Novartis, Koch was responsible for a wide range of intellectual property matters including litigation and licensing. Her current contract is for $250,000 for a year but would be reduced to help provide cash for a staff attorney. Baum said last month that Koch is primarily involved now with collaborative arrangements with other countries.

Our take? It is commonplace to be critical of lawyers, their profession and their numbers. CIRM, however, is an unprecedented agency operating in uncharted scientific waters with an enormous reponsibilility for generating a return for the state. It is engaged with firms that will be negotiating aggressively to cut the most beneficial deal possible for themselves – not for California taxpayers, who are paying the freight. CIRM must protect the state's interests. And first-rate IP lawyers do not come cheap. In 2008, the agency was lowballing when it offered $150 an hour. If CIRM fails to generate a financial return for the state, critics are sure to say that it was overmatched legally when it dealt with the private sector. On the other hand, the agency is sure to be battered by contemporary critics for its battalion of barristers.

The issue of a new hire went unresolved last month, and it was turned back to a handful of directors and staff to solve. CIRM directors will deal with it again at their meeting later this month.

A final footnote: Philip Pizzo, a CIRM director and dean of the Stanford medical school, was part of the meeting during which Trounson identified Stanford as failing to take of care of some of its IP responsibilities. Pizzo said towards the end of the meeting, "If Stanford is going to be referenced, we ought to be clear that we've got all the facts correct about what Stanford does or doesn't do."

Pizzo said Stanford does a "great job."

(An earlier version of this item said incorrectly said that CIRM would have six lawyers on staff next year.)

CIRM Budget Moves Forward Despite Objections About Legal Costs

SAN FRANCISCO – A proposed $17.9 million operational budget for the California stem cell agency has cleared a key hurdle despite objections concerning the addition of another attorney to its $2.4 million annual legal effort.

The spending plan was approved yesterday by the CIRM directors' Finance Subcommittee on an 8-0 vote. The proposal is 7.2 percent higher than spending for the current fiscal year, which ends in June. The agency by law operates with a stringent budget cap of 6 percent of its bond funding.

Most of the budget goes for salaries at the agency, which has slightly more than 50 employees. The agency spends $8.4 million annually administering its 400-plus grants and developing new grant programs.

The proposal to add another lawyer to its staff drew fire from CIRM Co-vice chairman Art Torres. He asked why the agency wanted to spend more money for "a lawyer we don't need."

CIRM President Alan Trounson and CIRM General Counsel Elona Baum defended the plan, saying another lawyer was needed to deal with intellectual property and research commercialization issues. They said that grantee institutions and businesses are not dealing with the legal ramifications in a satisfactory manner.

Trounson said the agency would be "at risk" if it did not have control of the legal issues.

Torres brought up a memo on the subject, which he said did not justify the addition of a lawyer. Other directors said they had not seen the memo and asked for copies. The California Stem Cell Report has also asked for a copy.

Michael Goldberg, a venture capitalist and chair of the Finance Subcommittee, asked CIRM staff and a handful of directors to resolve the matter between now and the end of May, when the budget is expected to be approved by the full board.

Currently CIRM has five attorneys on staff, not including directors who are lawyers. The budget for the internal legal operation is $1.3 million annually. The rest of the $2.4 million goes for contracted services, including the firm of Remcho, Johansen & Purcell of San Leandro, Ca., a highly regarded political and governmentally oriented law firm that is budgeted for as much as $650,000 for the coming year, down from $695,000 this year. Another attorney is also on contract for $250,000, down from $325,000 this year.

CIRM budget documents projected savings in $190,000 in legal costs from the current year that could be used to help hire another attorney. The total legal costs for next year are budgeted at $2.44 million, compared to $2.39 million for the current year.

Stem Cell Agency Proposes 7 Percent Budget Hike, Seeks $50 Million in Private Funds

The California stem cell agency is proposing an operational budget of $17.8 million for the coming fiscal year, an increase of 7.2 percent over estimated spending for the current year ending June 30.

Financial documents (proposed budget and finance report) prepared for tomorrow's CIRM governing board meeting also showed that CIRM hopes to snag "$50 million in new, outside financial commitment for CIRM programs." This would represent the first major effort in recent years by CIRM to solicit private funds. The "draft goal" is in keeping with the agency's move to build a base of non-governmental funding.

Currently it is financed with cash that the state, which is mired in a financial crisis, must borrow. While CIRM's budget is increasing, the general fund budget for the entire state has plummeted from $103 billion in 2007-2008 to $87 billion this year.

The proposed CIRM budget also disclosed the agency will be facing substantial new costs – $1 million annually – for rent beginning in November 2015. CIRM has been operating rent-free since 2005 because of an $18 million recruitment package put together by the city of San Francisco.

The largest item in the proposed budget is salaries and benefits at $11 million, up from a projected $9.3 million for this year. The agency, which is administering $1.3 billion in grants involving hundreds of researchers, projects an increase in staff to 59. The agency currently has 51 employees, according to the finance report.

Outside contracts are the second largest expense at $3.4 million ($3 million this year) with grant reviews, meetings and workshops at $2.2 million(no comparable figure for this year).

By law, the stem cell agency operates under a budget cap of 6 percent of bond proceeds under the terms of Proposition 71, the ballot initiative that created CIRM.

In addition to tomorrow's review, the budget will be examined by the directors Finance Subcommittee April 2 before coming back for final approval in late May.

(Editor's note: An earlier version of this item incorrectly stated that the rent costs would rise to $1 million beginning in 2016. In fact, the increase will begin in November 2015. CIRM has revised the start date.)

Stem Cell Agency Cuts Travel Under Pressure from Governor

No more lollygagging in London – that's the message from Gov. Jerry Brown to the California stem cell agency.

Brown is trying to crack down on out-of-state travel, including two dozen "mission critical" international CIRM trips to such locations as Paris, Amsterdam, Japan and Australia.

The Sacramento Bee this afternoon reported the governor's efforts to limit CIRM travel at a time when the state is under extreme financial duress. Reporter David Sider of The Bee quoted Evan Westrup, a Brown spokesman, as saying,

"Now is not the time to be lollygagging in London on the taxpayer's dime. We have quite a bit to focus on here in California."

The travel issue comes as the stem cell agency will be seeking support from the governor for a significant allocation from the sale of state bonds this fall. The agency will face a severe cash crunch late next spring unless it receives additional bond funding.

The Bee said that following an inquiry earlier this week by the newspaper, new CIRM Chairman Jonathan Thomas wrote to CIRM board members that he is reducing his office's travel by more than 50 percent and "has asked officials to consider similar reductions elsewhere in the agency."

According to The Bee, Thomas noted that like former CIRM Chairman Robert Klein he considered the proposed travel "mission critical," but said,

"I believe we can accomplish these goals while doing our part to reduce expenditures in these times of fiscal challenge."

However, the amount of travel expense involved is tiny in comparison to the agency's research grants, which now total more than $1 billion. CIRM's operational budget is only $18.5 million.

For the 54-person agency, the total budgeted travel (in state and out of state) for this fiscal year is $494,000,down from the $500,000 budgeted in 2010-11. The out-of-state travel budget for the office of the chair is $100,000. For the president's office, it is $107,356.

One reader commenting on The Bee story said,

"In the world of research, there are meetings all over the world, and if you don't attend you become irrelevant. ...I know none of you(other readers) will agree, but research is very different than going to Las Vegas for the WIz BAG Conference, then out on the town.  Research meetings are working meetings where people doing primary research work on the problems disjointed but collaboratively in the same breath."

Our comment: CIRM's travel expenses are a symbol in the context of the governor's public austerity efforts. While symbols are important, the travel expenses do not affect or come out of the state budget. They come from bond funds. CIRM's operational budget – also funded by bonds – is very tight, some say too tight to do the job right. If Brown is concerned about spending by the stem cell agency, he should focus on significant expenditures – grants and loans -- and whether the state is getting the most for its money. One way would to do that would be a true performance audit conducted under the auspices of the state controller instead of under the control of the agency itself.

Here is the text of the memo by Thomas to board members:

"The Governor’s Office recently confirmed that CIRM’s Governing Board has the authority to approve the agency’s out-of-state travel, but requested that CIRM consider reducing its travel expenditures by 50 percent. I have reviewed the proposed budget for out-of-state travel for the Office of the Chair. Although I believe the proposed travel is mission critical, as it is intended to advance CIRM’s mission by leveraging CIRM’s investment in stem cell research with investments by other countries and states with which CIRM has collaborative funding rrangements, I believe we can accomplish these goals while doing our part to reduce expenditures in these times of fiscal challenge. I have therefore decided to reduce the out-of-state travel budget for the Office of the Chair by more than 50 percent. Furthermore, I have requested that the Finance Subcommittee review the out-of-state travel budget for the other offices within CIRM to determine whether similar reductions can be made consistent with CIRM’s mission."

California Stem Cell Agency Plans a More Than 16 Percent Budget Boost

The California stem cell agency is proposing an $18.5 million operational budget for the coming fiscal year that will include a more than 12 percent increase in staff and reflect the rising costs of monitoring more than 400 grants and loans.

The agency did not disclose the size of the increase for the spending plan compared to actual spending projected through the end of the current fiscal year June 30. CIRM only offered a comparision to spending that was approved last June ($16 million). The proposed budget is up 16 percent from that figure. The agency, however, has been running behind the approved spending levels so the actual budget increase is likely to be substantially higher than 16 percent.

In documents prepared for a meeting Tuesday of the CIRM directors' Finance Subcommittee, the agency's staff briefly noted that a cash crunch could occur in the coming fiscal year if the state does not sell additional bonds, the only real source of funding for CIRM's $3 billion effort. A continued suspension of bond sales is likely this year because of the state's financial crisis.

The budget document said,

"If no new bonds are sold during FY 2011-12, expenditures could reach the 6% (legal, Prop. 71)cap by June 2012. However, plans are progressing to request authorization for new bond sales this year."

No further information was provided concerning the bond situation, although it is to be considered as a separate item at the meeting next week.

The budget document said CIRM is "well aware" and "sensitive" to California's fiscal crisis and said its spending plan is aimed at controlling spending.

The document said it reflects "continued increases in the programs, activities and overall workload at CIRM, and it mirrors changes in the number of fulltime employees, which is expected to grow to 56 from the target for FY2010-11 of 50 (an increase of 12%)."

With $1.2 billion committed out of $3 billion, CIRM cited a significant increase in workload, including a 47 percent hike in "payment transactions" for grants and loans from 663 to 975 and a 21 percent increase from 467 to 563 in scientific progress reports and "prior approval requests" for changes in awards.

Eight new positions are proposed, up from the current staff level of 48(a 17 percent increase). One is a "director of public communications" in the office of the chair of the agency. Two others are an information technology director and a special projects officer to help CIRM President Alan Trounson develop new initiatives and deal with biotech industry executives.

The largest budget category is for compensation, $10.3 million. The second largest category is outside contracting at $3.3 million. "Direct legal costs," many of which are contracted, are scheduled to hit $2.3 million. The agency is heavily reliant on outside contracting because of the former legal limit of 50 on the size of its staff. That limit was removed by legislation that went into effect at the beginning of the year.

The spending plan shows that CIRM is still wrestling with its critical grants management system after several years of work. It proposes spending $933,977 on the effort this year out of a total information technology budget of $1.3 million. It is not clear whether that figure includes the hiring of an information technology director, as proposed elsewhere in the spending plan.

The office of the chair, which includes both outgoing Chairman Robert Klein and co-vice chair Art Torres, is budgeted for $3.9 million. Again no comparision is available to estimated spending for this year, but the figure is up from the $3 million approved last June for the current year. Klein says he will leave his post this June. No successor has been chosen. The largest increases in Klein's budget appear to be in compensation (new hires) and outside contracting.

The Finance Subcommittee is expected to forward its recommendations on the budget to the full CIRM board at its meeting in early June.

The budget information from CIRM is coming much earlier than it has in the last several years, a significant improvement in an important aspect of the agency's openness and transparency. It also provides directors and the public with ample time to examine the proposal, raise questions and make suggestions for changes.

The public can take part in the meeting at locations in San Francisco (3), Pleasanton, Palo Alto, Irvine, La Jolla and Berkeley, Specific addresses can be found on the agenda.

Stem Cell Agency Moving Faster on Budget Preparation

It is fair to say that the $3 billion California stem cell agency is not a spendthrift organization – at least as far as its operational budget goes.

That's the money for salaries of its 48 employees, outside contracts (the second biggest item in the budget), monitoring grant performance and so forth. The agency is limited by law to spending only six percent of its $3 billion for overhead, an amount that many of its directors think is low, perhaps even inadequate. The limit was enshrined in state law by Prop. 71, the measure that created the stem cell research program in 2004.

That said, the agency has had difficulty in presenting a coherent proposed budget to its directors in a timely fashion. It has given them proposals that do not compare actual spending to proposed spending and which produce dubious numbers for the amount of increased spending. The proposed budgets, which are for fiscal years that begin July 1, have come late and have not allowed time for thoughtful examination by the CIRM governing board. (See here, here and here.)

This year promises an improvement. CIRM President Alan Trounson presented a schedule for the budget at the board's March meeting. It calls for presentation of the budget to the directors' Finance Subcommittee later this month with presentation to the full board in May. That is a full month ahead of what occurred in the past several years. It also allows time for the directors to ask for revisions that could be presented to them in June, before the beginning of the new fiscal year.

Michael Goldberg, a venture capitalist and chairman of the Finance Subcommittee, said he expects the panel to meet on April 19 to consider Trounson's proposed spending plan for 2011-12. Spending fror the current year was originally budgeted at about $16 million. Spending for the coming year should show increased costs for staff, given the new hires expected this year and the addition of a new vice president for research and development. Increased pension contributions for the agency staffers will also boost compensation expenses.

John Robson, vice president for operations, additionally told directors in March,

"Our number of progress reports has increased significantly, our grant and loan payments, those things impact significantly on the grants management office, the science office, and the finance office. The increase in work has gone up 25 to 35 percent just in the last year."

He continued,

"We also have a couple of one-time items that are going to be reasonably expensive. We have a performance audit that was stipulated by (state Senate) bill 1064. That's budgeted at about 250,000, and then there's the Institute of Medicine audit that the board has been working on, the chair's office, and we've budgeted 400,000 for that for this year with the balance...in the next fiscal year's budget."

Also likely to be discussed at the April 19 meeting is the near certainty that the state will not issue bonds until sometime in 2012, a situation that could bring CIRM perilously close to a serious cash flow crunch.

The agency's only source of funds is money that the state borrows (bonds). CIRM says it has sufficient cash on hand to meet existing commitments until June of 2012, but a delay in issuance of bonds could mean a slowdown in CIRM's aggressive grant schedule or worse.

In response to a query, Goldberg said.

"We are watching the situation closely."

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.

Klein Defends Burgeoning CIRM Budget

The San Francisco Examiner today published a couple of stories focusing on how the $3 billion California stem cell agency is immune to the budget pressures that face the rest of the financially troubled state.

Katie Worth wrote,

“...(N)ary a paper cut has injured the budget of the state-funded California Institute for Regenerative Medicine.

“In fact, last month, the 5-year-old agency’s largest operating budget ever was approved. Its out-of-state travel budget will more than double this year. Later this year, agency leaders hope to receive a legislative OK to expand the staff beyond the voter-mandated limit of 50 employees. The agency just hired a new vice president on a part-time basis: He will work about 24 hours a week for six months, and be paid $250,000.

“The agency chairman (Robert Klein) said all of these expenditures are justified because the research the agency has funded is well on its way to saving lives. In fact, he said once the current unbroken flow of cash begins to slow, the agency will be able to make a strong case to voters that they should fund even more research.”

Stem Cell Agency Budget Soars 28 Percent

The California stem cell agency plans to spend $15.7 million next year for its day-to-day operations, up 28 percent from this year's estimated spending of $12.3 million.

The $3.4 million increase is for the fiscal year that begins in 10 days. The hefty hike in spending comes at a time when the rest of state government is mired in a financial crisis that shows no signs of ending. CIRM's funds are provided, however, from state bonds – money borrowed by the state – and cannot be touched by the governor or the legislature under the terms of Prop. 71, which created the agency.

Because CIRM's budget consists of borrowed cash, the ultimate cost of its operations will be substantially higher than the nominal figures provided by the agency. CIRM has access to $3 billion in bonds. With interest, that translates to roughly a $6 billion bill for the state of California. In other words, the agency's operations will really cost nearly $32 million – not $15.7 million. And the $490,008 salary of CIRM President Alan Trounson will actually cost the people of California something a hair shy of $1 million.

But even at $32 million, CIRM's budget can easily be eclipsed by one or two of the beefy rounds of grants that the agency awards for stem cell research.

As we noted last week, the stem cell agency provided a much more detailed look this year at its spending plans, a vast improvement over the information that was offered a year ago. However, CIRM did not calculate percentage increases from this year's actual spending compared to what is proposed for next year. Both the percentage increases reported in this piece, along with the actual dollar increases, are the work of the California Stem Cell Report. They are drawn primarily from numbers on CIRM's “projected expenses” document.

The biggest increase in the budget is for salaries and benefits – a 22 percent ($1.5 million) increase from about $7 million to $8.5 million. The agency, which now has 45 employees, plans to hire five more persons in the coming year. The budget documents do not discuss hiring scenarios if legislation passes that would remove the 50 person cap at CIRM. Increases in state-mandated benefits amount to $400,000. Assuming an average of 47.5 employees for the year, salaries and benefits will consume $178,589 for each staffer.

The second largest item in CIRM's operational budget is for outside contracts. The agency relies heavily on non-state help because of the personnel cap. The figure for the coming year is $2.8 million, up 21 percent from $2.3 million this year.

The cost of meetings for the grant working group, which judges grant applications, will soar 151 percent from $452,000 this year to $1.1 million, a jump of $683,000. The budget documents available online do not explain the increase. But they do report that the figure would cover 12 meetings. The grant group archives show that it held only four meetings during the current fiscal year.

Another big jump will be seen in spending for information technology, particularly for the grant management system, which CIRM has been doggedly wrestling with for several years. Spending in that area will rise 53 percent, from $817,000 to $1.2 million, an increase of about $433,000.

The grant management system is a critical tool for the agency. CIRM is trying to oversee more than $1 billion in grants to more than 300 recipients and, at the same time, hand out many hundreds of millions more in the next year or so. It is building custom programs for entire process, from applications to oversight. Currently, CIRM has a $125,000 RFP out for “systems analysis and software development services” and hopes to have a company on board next month.

CIRM's spending plans (see here for all the budget documents) will be considered today by the directors' Finance Subcommittee in a scheduled one-hour teleconference meeting that has public locations in Cornelius, N.C, San Francisco(2), Los Angeles, San Diego, Stanford, Irvine and La Jolla.

At a San Diego meeting beginning on Tuesday, the full board is expected to approve the budget with no major changes. Teleconference locations for the public are available in Washington, D.C., and the City of Hope in Duarte, Ca.

Out-of-state locations are provided for directors who cannot attend the meetings in person, but the sites are public by law.

The full board meeting can also be heard on the Internet. Instructions for dialing in can be found on the agenda. Addresses of teleconference locations are also on the agenda, but some are so vague that you should call CIRM in advance for additional directions.

CIRM Releases Budget Info

For those of you eager to dig into CIRM's proposed budget for next year, the agency yesterday afternoon posted a raft of documents dealing with the spending plan. At first blush, it appears to be a 21 percent increase over the budget that was approved for this fiscal year, which concludes at the end of the month. However, the spending for this year is running under budget, which would mean that the increase is actually higher. We will have more details on the budget later.

Budget Contretemps: CIRM Takes Another Run at Spending Plan

The California stem cell agency has rescheduled for June 21 consideration of its budget for the fiscal year that begins in July.

CIRM cancelled an earlier meeting scheduled for Thursday after it failed to post publicly the budget documents on its web site, a perennial problem with important information needed for CIRM meetings. The Thursday meeting was scrubbed after the California Stem Cell Report on Tuesday published an item headlined, “CIRM Stiffs Public on Spending Plan.” Documents were also not available for the June 21 meeting at the time of this writing.

In a comment filed yesterday with the California Stem Cell Report, Don Gibbons, CIRM's chief communications officer, said the budget documents were submitted to CIRM Chairman Robert Klein five days ago. It was not clear whether those documents were being revised. We queried Gibbons this morning concerning the missing information for the public.

A CIRM insider said that it is “a bit alarming” that CIRM failed to provide the budget information to both the public and directors for the Thursday budget meeting of the Finance Subcommittee. The source said that the same problem occurred last year, and the staff promised to distribute the information in a timely fashion. The insider said the issue reflected poorly on the stem cell agency. (The full text of the source's remarks can be found here.)

California's state Constitution provides the public with a broadly construed right to state government information.

CIRM's Gibbons has not responded to our request Wednesday for an explanation for cancellation of Thursday's budget meeting.

CIRM's Budget Preparation Problems a 'Bit Alarming'

The California stem cell agency called off its budget review meeting this week apparently because of its inability to provide the spending plan information in a timely fashion.

According to a source who can be identified only as a CIRM insider, the situation is “a bit alarming.”

The source said,

“Frankly, the budget documents were not provided in time for anyone, either board members or the public, to digest and understand them in order to conduct a meaningful decision-making process. What is surprising and a bit alarming is that the same problem occurred last year and staff committed then to timely dissemination of the budget for this year. The cavalier 'aw shucks' attitude towards preparing and disseminating on a timely basis the budget, which one knows a year in advance will be due, reflects either incompetence or an intentional effort to avoid meaningful oversight by the directors."

Another reader, who also must remain anonymous and who works elsewhere in state government, said that the problems indicate that CIRM needs help and organizational changes. He said his own agency has been successfully putting its budget together for months now with the assistance of the state Department of General Services and Department of Finance.

CIRM has not responded to our request earlier this week for explanation of why it cancelled yesterday's meeting of the directors' Finance Subcommittee. The cancellation came after we published on Tuesday an item headlined, “CIRM Stiffs Public on Spending Plan.”

Our comment: It is clear that this is a matter that reaches the highest levels of the stem cell agency. Failure of an orgtanization to perform routine tasks – which is what budget preparation is – in a routine fashion is a strong indicator of pervasive management problems.

Stem Cell Agency Calls Off Budget Session: No Public Info Available

The California stem cell agency today cancelled its Thursday review of its proposed budget for the next fiscal year after it failed to supply any information to the public on the spending plan.

The agency did not offer any explanation for the postponement of the meeting of the directors' Finance Subcommittee. Don Gibbons, CIRM's chief communications officer, also did not respond to a query early today from the California Stem Cell Report concerning the reasons for cancellation of the session.

On Tuesday, in an item headlined, “CIRM Stiffs the Public on Spending Plan," we reported that the $3 billion agency had “extended its practice of withholding important information from the public – this time in connection with its proposed budget for 2010-11.”

The item also said,

“At last year's budget meeting of the Finance Subcommitte, five CIRM directors publicly expressed displeasure at the lack of material made available to them concerning the budget. The situation was not much better at the full directors meeting later last June. The budget documents were woefully inadequate and were not responsive to questions raised earlier at the Finance Subcommittee meeting.

“The budget failed to make meaningful year-to-year comparisons and came late to both directors and the public. And then CIRM Chairman Robert Klein – in a bit of financial flim-flam – described the spending plan as a three percent decrease, when it actually was a 25 percent increase. CIRM compounded that misrepresentation by enshrining it -- albeit with qualifiers -- in a press release.”

We also queried Gibbons concerning an earlier version of the Finance Subcommittee agenda which said it would consider “funding sources to cover budget requirements.” That language was dropped from later versions of the agenda.

On Tuesday, Gibbons said,

“That wording was a cut-and-paste carryover from a prior meeting and in light of our current funding situation, it is no longer relevant.”

His comment apparently referred to the fact that CIRM now has bond funding that will carry it through the end of 2011.