California Stem Cell Debt: Refinancing $146 Million

The state of California is planning a $2.2 billion bond sale next week with about $146 million of it going to refinance debt run up by the California stem cell agency.

The new, long-term borrowing will pay off short-term debt used for stem cell research over the last two years.

The $3 billion agency was set up to subsist on money borrowed long-term by the state with general obligation bonds. The ballot initiative that created the agency, Prop. 71 of 2004, authorized the bonds. Interest on the bonds roughly doubles the cost of the research.

In 2011, Gov. Jerry Brown sounded an alarm about California's burgeoning wall of debt and sales of bonds were cut back. The agency maintained its operations through the short-term borrowing (commercial paper).

Authorization for the bonds ends in 2017 and the agency is scheduled to run out of cash for new grants that year as well. The agency is attempting to devise some sort of public-private mechanism to generate funds after 2017.

A financial statement prepared by the state treasurer's office for the Oct. 22 bond sale said that $1.2 billion in stem cell bonds was outstanding and $1.6 billion was unissued as of Sept. 1.
Individuals will have an opportunity this month to buy the bonds during an early order period. But they will not enjoy the benefits provided by non-taxable bonds.

All of the stem cell bonds are taxable, as opposed to many state bonds that are not. During the 2004 ballot campaign for Prop. 71, the public was led to believe that the agency would be financed with non-taxable bonds, which would have meant much lower borrowing costs for the state to the tune of hundreds of millions of dollars.

In 2007, Bernadette Tansey, then of the San Francisco Chronicle, reported that Robert Klein, head of the Prop. 71 campaign and first chairman of the stem cell agency, knew that taxable bonds were likely to be required but did not disclose that fact to the public.

The agency has awarded $1.9 billion and has about $600 million in uncommitted funds. The remainder of the $3 billion is going for administrative expenses over the life of the agency. The agency said last week it had $61.4 million on hand as of Sept. 30.

Earlier this month, Michael Marois of Bloomberg News reported,

"(State Treasurer Bill) Lockyer has said he plans to offer an estimated $12.5 billion of debt in the next 18 months. As of Sept. 1, California had $79.4 billion in long-term bonds outstanding, out of $147.8 billion authorized by voters, according to Lockyer’s website.”

California Stem Cell Agency Bonds On Sale in March

Early next month, the state of California will sell $2.7 billion in bonds, a tiny fraction of which will go towards the California stem cell agency.

It is all part of an arrangement that currently involves short-term borrowing as well to keep the cash pipeline at CIRM properly filled.

To refresh some of you, the agency subsists off money that the state borrows (bonds) instead of going to the legislature annually for financial support. While that avoids competing against school children, the poor, the University of California, state colleges, parks, highways and other interests seeking state funding, it also means that the cost of a $20 million grant is something closer to $40 million because of the interest expense.

The California Stem Cell Report last week asked the state treasurer's office about the bond sale March 12-13 and what it means for the stem cell agency. Here is what Tom Dresslar, spokesman for the treasurer, replied in an email.

“CIRM’s funding needs now are met via the issuance of commercial paper (CP).  They’re authorized a certain amount of CP periodically.  Then we work with them on a regular basis to issue the commercial paper on an as-needed basis.  Last fall, they were authorized $160 million of CP.  We will issue the first $27 million under that authorization (this) week.  This spring, CIRM is scheduled to receive another $100 million authorization. The Department of Finance , consulting with CIRM officials, determined the $100 million would be needed to meet CIRM’s funding requirements through the end of 2013.

“Now, here’s where it gets a little complicated.  The state pays down the CP with bond proceeds.  The March ....bond sale includes $60 million of stem cell bonds.  Those proceeds won’t provide new money for CIRM, but will pay down the CP proceeds CIRM already has used.”

Proposition 71, which created the stem cell agency in 2004, authorized bond sales for stem cell research for only 10 years. CIRM's financial timekeepers say the clock started running when the first bonds were sold. The upshot is that the agency will run out of money for new grants in less than four years.

California Stem Cell Agency Waiting Until April for More Cash

The state of California plans to sell $2 billion in bonds next Thursday, but the California stem cell agency, which is entirely dependent on state borrowing, will have to wait until later this spring to see more cash.

J.T. Thomas, chairman of the stem cell agency, said he expected to see CIRM benefit from the next bond sale in April. The agency currently has sufficient funds to operate until about June, plus an arrangement with the state for continued funding if a timely bond sale is not completed.

The $3 billion stem cell agency was created in 2004 through a ballot initiative that authorized its funding through the sale of state bonds over a 10-year period. The interest on the bonds raises the total cost of the agency to taxpayers to about $6 billion. Likewise, the cost of a $20 million grant is actually more like $40 million.

Financially beleaguered California's interest costs have sharply increased in recent years as the state has borrowed $53.8 billion from 2007 to 2010. This year, interest costs will come to about $5.4 billion, nearly 6 percent of the state budget. Nine years ago, it was $2.1 billion or 2.9 percent, according a piece by Randall Jensen (no relation to this writer) of the Bond Buyer newspaper.

The expense of borrowing shrinks the amount of state money available for public schools, helping the medically indigent and other state purposes.

Next Thursday's bond sale will go to refinance debt at lower rates. This year, Gov. Jerry Brown and state Treasurer Bill Lockyer plan to sell only $5.2 billion in general obligation bonds, roughly one-fourth of what the state issued in 2009.

California Stem Cell Agency Slated for More Bond Funding This Spring

The California stem cell agency is slated to secure additional bond funding this spring when the financially troubled Golden State initiates a new round of borrowing.

CIRM Chairman Jonathan Thomas told directors today that the $3 billion agency will be involved  in the upcoming round. He did not specify the amount that CIRM would receive or the timing of the bond issue.

The agency's only significant funding comes from state bonds, whose funds flow directly to CIRM. The governor and legislature cannot touch the CIRM funds under the terms of the ballot measure that created the research effort in 2004.

Last year at this time, the state suspended bond sales. At the time, CIRM had sufficient funds to meet its commitments until about June of this year. Late last year, Thomas worked out a temporary funding arrangement with the governor's financial aides to cover any possible shortfall.

Thomas made the announcement at the beginning of today's CIRM board meeting in San Diego.

Currently CIRM President Alan Trounson is reviewing new stem cell research that has been published recently.

Stem Cell Agency Strikes New Financial Deal with State of California

The $3 billion California stem cell agency has worked out a creative, new financial arrangement with the Brown Administration and the state treasurer that assures the agency of cash at least until 2013.

CIRM was on track to run out of funds late next spring because of the earlier suspension of the sale of state bonds, the agency's only real source of money. When the sales resumed last week, it received only $50.8 million, which is well short of meeting CIRM's obligations to grant and loan recipients.

But new CIRM Chairman Jonathan Thomas said late Friday that CIRM now has what amounts to a $225 million line of credit with the state and assurances of a loan should additional cash be needed. In a telephone interview with the California Stem Cell Report, he said,

"We are in really good shape."

The arrangement appears to eliminate the likelihood that CIRM could run out of funds if the financially troubled state of California suspends bond sales again early next year. The state's current budget is built on optimistic revenue projections, which are not being met. If those fall short, severe, automatic budget cuts will be triggered in January. Under less dire conditions last year, the state suspended bond sales. Gov. Jerry Brown, who last week touted the $50.7 million in stem cell borrowing, has also deplored the state's debt load. Bond interest costs have risen from 3.4 percent of the state budget in 2003-04 to nearly 8 percent this year. That amounts to $2,542 per person, compared with the national median of $1,066, according to The Sacramento Bee.

CIRM's new deal with the state minimizes interest costs through the possible use of commercial paper, which is a form of very short term borrowing with low interest rates.

Here is how the new arrangement works, according to Thomas, who is a Los Angeles bond financier. Currently CIRM has $190 million on hand. The addition of the $50.8 million will carry it through June, which is the end of the current fiscal year. If CIRM has additional financial needs, the treasurer's office will provide up to $75 million through the use of commercial paper, which CIRM would ultimately have to repay.

If the state sells more bonds in the first part of 2012, CIRM will receive an additional allotment that will carry it into the 2012-13 fiscal year. If no bond sales occur, the treasurer's office will provide an additional $150 million via commercial paper over a six-month period. Should CIRM need cash beyond that, the state would provide a loan in much the same way that former Gov. Arnold Schwarzenegger did during CIRM's early days. The chief advantage to the state is that the arrangement helps to avoid the issuance of more bonds this year with their ongoing interest costs. The financial arrangement is subject to a review every six months.

Thomas, who was nominated for his post by both Brown and state Treasurer Bill Lockyer, said the arrangement makes it clear that the California stem cell agency is one of the state's priorities. He said,

"We got everything we want."

We asked Thomas who came up with the idea for the use of commercial paper. He said he could not remember specifically but said it popped up during discussions with the state Department of Finance staff, himself and CIRM co-vice chair Art Torres, a former state legislator and former head of the state Democratic Party. Ultimately the plan was approved in a meeting with Thomas, Torres, CIRM's outside counsel James Harrison and state Finance Director Ana Matosantos.

CIRM's cash needs are increasing as it more aggressively pursues development of clinical therapies. Next spring it is slated to mount a $240 million grant round. The agency has roughly $1.4 billion left, but a good chunk of that will go for operational costs, which are currently $18.5 million a year and are likely to increase. CIRM has projected that it will run out of its bond funding in about 2017.

Stem Cell Agency Chair Pleased With Likelihood of Fresh Funding

STANFORD -- The chairman of the California stem cell agency this morning expressed optimism about staving off a cash flow crisis at CIRM with additional funding from the sale of state bonds this fall.

Jonathan Thomas, a Los Angeles bond financier, told the CIRM governing board meeting here that he has been dealing with the governor's and state treasurer's offices during the past two months and is "very happy with the way things are going."

Without additional funding from state bonds, the $3 billion research enterprise will face a severe cash crunch next spring. Earlier this year, the state suspended the sale of general obligation bonds, the only source of funding for CIRM.

Thomas, elected in June as chairman of CIRM, did not go in details about the bond sale this fall. But he noted that it is a "tricky time" because of the state's financial crisis.

The size and timing of the bond sale is yet to be determined. The state treasurer's office has said many details are still being worked out.

California To Proceed with Fall Bond Sale; Stem Cell Agency Could Benefit

The California state treasurer's office today reaffirmed that it intends to move ahead with a state bond sale this fall, which could be good news for the $3 billion California stem cell agency.

CIRM will face a severe cash crunch in less than 12 months, roughly May or June of next year, without additional dollars. Its only real source of funding is through the sale of California general obligation bonds.

Tom Dresslar, spokesman for state Treasurer Bill Lockyer, told the California Stem Cell Report today that details for the fall sale are still being worked out. He said in an email,

"At this point, the only thing we can say with a good degree of certainty is that we'll sell (government obligation) bonds this fall. The number, size and structure of those transactions remains undetermined. Much will depend on priorities set by the Administration (of Gov. Jerry Brown), and how much new bonds they want to issue to keep current projects going or start new ones."

Last May, the state said that it would sell only $1.5 billion in bonds this fall to keep borrowing costs down in light of the ongoing state budget crisis. Roughly $37 billion in long term bonds are awaiting sale, according to the state treasurer's office, including $1.9 billion in bonds for CIRM. That is likely to mean that CIRM will face competition in receiving an allocation from this fall's sale.

Reporter Kathleen Pender quoted Dresslar in this morning's San Francisco Chronicle as saying,

"We need to get a firm handle on the financial situation of ongoing infrastructure projects, how much money they need, how far can they go with their current cash."

In June, the stem cell agency's new chairman, Jonathan Thomas, spoke frankly about CIRM finances just before he was elected chair. He told CIRM directors,

"The agency faces the real possibility that it will not have timely access to the amount of bond proceeds it expected and may be forced to look elsewhere in very short order to the full funding required to meet its projected short term needs or to evaluate how to push grants out or otherwise modify expenses if that becomes necessary. And let's not kid ourselves – this problem could last for a long time." 

Thomas was nominated for his post at CIRM by both Lockyer and Gov. Brown, which should be of benefit to CIRM in securing bond proceeds.

Earlier state plans called for a $2.4 billion bond offering in the spring of 2012, which the stem cell agency might also share in. However, that might cut very close in terms of CIRM's cash flow. Additionally, the state could be in the midst of another major budget crunch because of cutbacks that could be triggered in January.

State Treasurer Boosts CIRM Chair Candidate with Strong Letter of Support

California State Treasurer Bill Lockyer today urged his five appointees to the board of the $3 billion state stem cell agency to vote this week for a Los Angeles bond investor as the new chairman of the research enterprise.

In a robustly worded letter, Lockyer said Jonathan Thomas, chairman of Saybrook Capital of Santa Monica, Ca., is the only candidate to have the "complete 'toolkit'" to meet the legal and other criteria for the job.

Lockyer, who holds the key to CIRM's financing, and two other state officials nominated Thomas in May. In his letter, Lockyer particularly stressed Thomas' background in state bond financing. California state bonds are the only real source of cash for the agency. Thomas' firm specializes in distressed government bonds. California's bond rating is the worst of any state in the nation.

The other candidate to replace outgoing Chairman Robert Klein is Frank Litvack, a Los Angeles cardiologist and businessman. Litvack was CEO of Conor MedSystems of Menlo Park, Ca., when it was sold in 2006 for $1.4 billion. Litvack, who has been described as a serial entrepreneuer, says he has raised tens of millions of dollars for various companies.

The election for the new chair is scheduled to be held Wednesday evening at the meeting of the 29-member CIRM board in San Diego.

If this were a normal political situation, Lockyer's letter would be considered a direct order to his appointees. Failure to comply could mean a request that the appointee resign. However, this is only the second election for CIRM chair. And the research enterprise is quite removed from the normal political environment.

Lockyer, however, runs the sale of state bonds, which are CIRM's life blood. The stem cell agency will need a fresh fund transfusion no later than next spring.

Lockyer said in his letter (see the full text below) that all – and he underlined all – the legal criteria should be given full consideration. Lockyer specifically mentioned "direct knowledge and experience in bond financing," which he also underlined and parenthetically noted "emphasis mine."

Lockyer said that the legal requirements "must govern" the selection of the chair. If the criteria are missing, Lockyer said that the chairman "simply cannot independently fulfill the oversight responsibilities of the position, much less the very significant responsibilities" of dealing with bond financing and government relations.

The state treasurer told his appointees that his letter was the first time he had contacted his appointees to board. He said he did so today only because he felt so strongly about Thomas.

Here is the text of the letters to all five CIRM board members appointed by Lockyer: Michael Goldberg, Michael Friedman, Francisco Prieto , Floyd Bloom and Robert Quint.
Lockyer Letter to ICOC Appointees Supporting Thomas 06-20-11

California Budget Mess Threatens CIRM Funding

The collapse of efforts to resolve California's financial crisis in June seems nearly certain to place the state's $3 billion stem cell research program perilously close to a serious cash crunch come next year.

The situation should come as no surprise to lame duck CIRM Chairman Robert Klein, who stunned the agency's governing board in 2009 with similar news. Additionally, in December of last year, only days after he told the CIRM directors Finance Subcommittee that no funding problems existed, Klein warned the full board that it was "essential" that the agency quickly provide assurances of "reliability of our funding."

Klein, a real estate investment banker, considers himself something of a government bond expert because of his experience with housing bonds. He says he and a handful of associates crafted the ballot initiative that created CIRM, Prop. 71, to avoid the financial vagaries that have plagued the NIH. To do that, he relied on borrowed money (state bonds), which makes everything CIRM does cost twice as much as it would on a normal basis. For example, the $20 million grant to scientist Dennis Carson at UC San Diego actually will cost state taxpayers about $40 million because of the interest on the borrowing. Interest costs for CIRM currently run $200,000 a day on the $1 billion it has borrowed so far.

Klein's plan assumed that the state would regularly issue bonds. However, beginning last January, the state suspended the sales of bonds for six months to avoid $248 million in additional interest costs. Today, the state budget remains many billions in the red, and most signs point to continuation of that bond delay decision.

Two days ago, The Bond Buyer financial newspaper reported that state Treasurer Bill Lockyer will not sell bonds until the state budget is balanced. Reporter Rich Saskal quoted Lockyer's spokesman, Tom Dresslar, as saying,

"The bottom line in terms of (revenue anticipation notes) and infrastructure bonds is the timely adoption of a balanced budget."

The California Stem Cell Report first discussed the bond sale problem on March 23. That was before the collapse of budget negotiations in Sacramento. The situation is much more serious today.

At this point, a balanced state budget is not likely to occur unless voters approve in November tax increases  – which they have previously rejected -- through a ballot initiative that is yet to be written. Even then, bond sales are not likely until sometime in 2012, according to Lockyer.

While CIRM says it has sufficient cash on hand to deal with its existing obligations until June of 2012, the agency's timetable calls for new grant rounds to continue to move forward aggressively this year and next. Extreme pressure will be felt in the treasurer's office from competing interests for urgent and early bond sales when they resume. And a good possibility exists that CIRM bond sales will not come up in the first round in 2012, assuming sales are resumed then.

On May 3-4, the 29 directors of the stem cell agency are scheduled to meet in Los Angeles. High on their agenda should be a discussion of finances and alternatives to ensure that CIRM's grant programs continue to move forward – albeit slowly -- even if bond revenues do not materialize until well into next year. Delay could be the operative response. Postponing new grant programs, RFAs for existing efforts and even payments to researchers and institutions – all could be on the table. One additional matter to discuss – designation of someone to deal with the full range of bond issues, given that Klein is leaving his post in less than three months, if not sooner.

California Stem Cell Agency Says It Unaffected by Suspension of State Bond Sales

Suspension of California bond sales because of the state's budget crisis will not have an “immediate impact” on the state's stem cell agency, whose only real source of cash is state bonds.

James Harrison, outside counsel for the CIRM board, said that the agency “has cash reserves to cover its current needs and it does not need to issue bonds in the spring.” As recently as December, other CIRM staff members had also said that the agency had funding to cover its programs to about June 2012.

However, on Dec. 14, CIRM Chairman Robert Klein told agency directors that the reliability of the agency's funding needed “immediate attention” because of a notice that his office had “just” received from the state treasurer. Klein also said that “our collaborative funding partner nations” early this year will require “assurances of our future performance.” His warning came on the eve of his successful bid for re-election as chair and was much different than a rosy assessment he offered 12 days earlier. .

Here is the text of Harrison's response to our query to Don Gibbons, CIRM's communications chief, concerning the impact of the bond sale delay on CIRM. In his comment, Harrison refers to earlier items on the California Stem Cell Report about Klein's changing positions on the state of CIRM's bond financing. Some of those items can be found here, here and here.

Harrison's statement:

“As we have stated in the past, we disagree with your characterization of Chairman Klein's comments to the Board.  At the time of the Treasurer's request, CIRM had no authority for the Treasurer to issue bonds on CIRM's behalf.  The Chairman therefore considered it a priority to respond to the Treasurer's request in light of CIRM's projected need for additional bond funding for the 2011/2012 fiscal year.  You are confusing the Chairman’s desire to get a required authorization approved (before he left the agency) that could cover any bonds sold in 2011 or 2012.  As the Chairman previously reported, the agency has cash reserves to cover its current needs and it does not need to issue bonds in the spring. CIRM therefore did not request bond funding as part of a Spring 2011 bond sale, and as a result, the Treasurer's decision not to go to the market in Spring 2011 does not have an immediate impact on CIRM.”

For those interested in more details about CIRM's borrowing, as of last November, the state owed about $2 billion on stem cell bonds, including $1 billion in principal and about the same amount in interest, according to the state treasurer's office. Payments on the interest come out of the state budget each year and affect the amount of cash available for other state expenses, ranging from education to health services for the poor.

Prop. 71, which created CIRM in 2004, authorized $3 billion in bonds that flow directly to CIRM and cannot be touched by the governor or the legislature. The borrowing is expected to cost another $3 billion to $4 billion over the lifetime of the bonds.

A special, six-person committee, the California Stem Cell Research and Cures Finance Committee, is charged with determining by majority vote whether it is “necessary or desirable” to issue bonds for stem cell research. Three members of the CIRM board of directors, including Klein, sit on the committee. The other three members are the state treasurer(who is the chairman), the state controller and the state finance director.

California Suspends Bond Sales: Potential Impact on Stem Cell Agency

The state of California, dogged by a mammoth financial crisis, is postponing the sale of state bonds this year, raising questions about the move's impact on the state's stem cell research effort, which is funded solely through the borrowed money.

State Treasurer Bill Lockyer said yesterday the delay in selling state bonds until later this year would save the state $248 million. It would be the first time that the state has not sold bonds in the first half of the year since 1988, according to Bloomberg News. Lockyer's action came as part of the stringent state budget proposed yesterday by Gov. Jerry Brown.

On Dec. 14, Robert Klein, chairman of the $3 billion California stem cell agency, told its directors that the reliability of the agency's funding needed “immediate attention” because of a notice that his office had “just” received from the state treasurer. Klein declared,

“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 also said that early this year “our collaborative funding partner nations” will require “assurances of our future performance.”

Klein's warning came on the eve of his successful bid to be re-elected as chairman of the agency. The notice from the treasurer did not carry the urgency that Klein indicated and was nearly two weeks old by the time he told directors about it. It also arrived in Klein's office the day before he gave a rosy financial assessment to the directors' Finance Subcommittee and said no problems existed with its bond financing.

We have queried CIRM concerning its view of the impact of the suspension of state bond sales. In the past, CIRM officials have said it has enough cash on hand to operate and award grants to about June 2012.

According to the Bloomberg article by Michael Marois and Alison Vekshin, California has about $69 billion in securities outstanding as of the end of June. Another $100 billion in debt has been authorized by voters but has not been issued.

The article said that debt service, including the interest on stem cell bonds, will cost the state nearly $5 billion in the next fiscal year, even after the moratorium.

CIRM Board Attorney Challenges Assessment of Klein's Financial Warning

James Harrison, outside counsel to the CIRM board of directors, this afternoon took issue with our item yesterday that reported that CIRM Chairman Robert Klein issued an “urgent, financial alarm” concerning the agency's bond funding as part of his bid for re-election.

We are carrying the message from Harrison, of Remcho, Johansen & Purcell of San Leandro, Ca., verbatim. Our assessment of it follows his remarks. For the original items, see here and here.

Harrision's remarks:

“I write in response to your recent blog postings regarding CIRM’s financial condition and in appreciation for the additional information provided by the Treasurer’s Office.

“First, Bob Klein did not issue 'an urgent, financial alarm' in his candidate statement as you suggest.  Rather, he made the Board aware of an issue that he intends to “immediately focus” on if the Board were to re-elect him as Chair.  Currently, CIRM has no authority for the Treasurer to issue additional bonds on CIRM’s behalf.  Given CIRM’s expectation that the disbursement of funds will accelerate in 2011, it important that this authorization occur in the first quarter while CIRM’s existing Board members and staff who are familiar with the process are in place.

“In an email communication to CIRM on December 2, 2010, the Treasurer’s Office informed CIRM that the Treasurer’s Office only had “December and January available for finance committee meetings since we could issue bonds as early as February 2011.”  Based on this exchange, staff believed that it was a priority for Bob to work with them to prepare the internal projections that are essential for the meeting.  It is important to obtain an additional authorization even though Bob believes that it is not necessary to obtain bond funds in the immediate future.  We welcome the additional information from Tom Dresslar, the Treasurer’s spokesperson, but don’t perceive a significant difference between what the Treasurer’s Office has said and what Bob Klein said in his statement.  Furthermore, even if the California Stem Cell Research and Cures Finance Committee meeting were to occur in February or March, Bob would like to ensure that all of the background work that is necessary to provide additional authority to issue bonds on CIRM’s behalf is completed in the first quarter of 2011, including updated projections for 2011 and 2012 that are generally required by the Department of Finance.  Given that Bob has stated that he only has 90 to 180 days available to serve as Chair, he would like to focus on this immediately.”

Obviously our characterization of Klein's remarks is our opinion. But given the nature of his choice of words – such as “just informed,” “immediate,” “essential” and “there may not be another opportunity” – plus the election-eve timing of the statement, ample evidence exists to conclude that Klein was sounding an urgent alarm aimed at generating concern among CIRM board members. And the point of the concern was to demonstrate Klein's indispensability to directors.

Klein's Fiscal Warning Does Not Match Up with State Treasurer's Account

In his bid to be re-elected, the chairman of the $3 billion California stem cell agency, Robert Klein has issued a financial warning to CIRM directors that is distinctly at odds with what the state treasurer's has told him.

In response to questions from the California Stem Cell Report, Tom Dresslar, spokesman for state Treasurer Bill Lockyer, provided an account that differs in major ways with information that Klein released in an election-eve pitch to CIRM directors. (The state treasurer manages the bond sales that are CIRM's only real source of cash.)

In a statement posted today on the CIRM Web site, Klein said that he was "just informed" by the state treasurer about a looming financial problem that needed "immediate" attention. Klein said it was “essential” for CIRM to quickly provide assurances of “reliability of our funding.”

However, the treasurer's statement did not carry that urgency or compelling weight. It primarily involved hypothetical bond sale timing matters. Dresslar said that CIRM was alerted to the treasurer's view of the state of CIRM bond financing on Dec. 2, the day before Klein gave a rosy financial assessment to the directors' Finance Subcommittee. Klein was also aware of the bond timing questions before last Wednesday's board of directors meeting and did not bring them to the board's attention.

Klein's statement today on CIRM's "financial stability,"  however, said,

“The (state) Treasurer's office has just informed us that the next California Stem Cell Research and Cures Finance Committee (the panel that authorizes CIRM bond sales) meeting must be held in January 2011. 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 also said that early next year “our collaborative funding partner nations” will require “assurances of our future performance.”

Here is the full text of what the treasurer's office e-mailed to the California Stem Cell Report.

“On the record:

“We don't necessarily agree Klein issued an 'urgent financial alarm' in his statement of candidacy. Regardless, here's what the State Treasurer's Office told CIRM, and didn't tell CIRM:

“We did not say the Finance Committee had to meet in January to authorize additional bond sales. Additionally, we did not tell CIRM there was a possibility the Finance Committee, if it didn't authorize additional bonds in January, would have to wait until late 2011 to do so.

“We told CIRM that, under existing Finance Committee resolutions, the Institute effectively has zero bond authorization remaining. That means, in order for us to sell more stem cell bonds, the Finance Committee has to meet and approve additional authorization. We told
CIRM we could have a bond sale as early as next February. We said if CIRM wanted to get some of the proceeds of any February sale, the Finance Committee would have to meet in December or January.

“This communication with CIRM occurred Dec. 2.

“It's important to stress we have set no firm bond-sale schedule for 2011. Hypothetically, if the State conducted a bond sale in February 2011, and stem cell bonds were not included in the deal, the CIRM Finance Committee could meet in any subsequent month of the year and authorize additional bonds that could be sold in any subsequent 2011 sales.”

Klein's rendition of the bond sales situation is not the first such instance in recent weeks. He earlier announced that his hand-picked candidate to succeed him had to drop out because he was not a U.S. citizen. Klein, who is an attorney, based that assertion on an antiquated state law that the state attorney general has officially declared is unconstitutional.

CIRM directors meet tomorrow afternoon at 4 p.m. PST at Stanford University to deal with the chairmanship question. The public can participate in the meeting there or at teleconference locations in Los Angeles (2), La Jolla(2), Burbank and Duarte. The specific addresses can be found on the agenda. The meeting is also scheduled to be audiocast on the Internet(directions also on the agenda).

Klein's Fiscal Warnings at Odds With His Rosy View 11 Days Ago

Less than two weeks ago, CIRM Chairman Robert Klein told directors of the California stem cell agency that its financial situation was rosy and no problems existed with its bond financing, its only source of cash.

His statements on Dec. 3 stand in sharp contrast to his election eve warning today that the agency must act swiftly to stave off a looming funding problem.

Klein made his comments at a meeting of the directors Finance Subcommittee, chaired by Michael Goldberg. Only a handful of the 29 CIRM directors attended the meeting. Here is the text of what Klein said, according to the transcript.

“Chairman Goldberg: Okay. Thank you. I'd like to in the time that remains briefly address the climate for california bond issuance since we're going as an agency dependent on their bond authority. And there's been articles in the press in the last two weeks in connection with the last large series of bond financings the state has done about some of the challenges and difficulties. And without getting into any of the specifics of those issues, I'd like to ask Chairman Klein, who's maintained contact with the issuing authorities, what the general perspective or view is over the course of the next 12 to 24 months and whether or not there's any cause for action on the part of the ICOC (CIRM's board of directors) with respect to anything we can or should be doing being mindful of that.

“Chairman Klein: Thank you, Chairman Goldberg. So given that over the last three years we've tried to always look forward at least a couple of years and foreseeing the difficult environment particularly with some of the initiatives that passed in this last session, this last electoral cycle, we've been fortunate, by doing advanced planning, to make sure we could cover our strategic plan advances we would need to make over the running 24-month period going forward. At this point we've achieved that objective, and we have a little less than 24 months, but approximately that level of cash funding that's available to us. So our programs are very stable during this period. It's hopeful that in that time period California will return to a much stronger bond position.

"Nevertheless, for our scientific partners and our international partners and our individual scientists within the state, it's important to again remind everyone that under the state institution, the top 40 percent of the revenue of the state goes to education, and then bond debt service is the next priority ahead of harbors, ahead of major new highway construction, and other projects to the extent they come out of state funds versus federal funds. So California will retain the ability, even if this difficult period is a full two years or longer, to fund this agency on a timely basis. And institutions and the scientists will be covered in the time period of our commitment. So we're very thankful for the support of the state treasurer's office and for the support of the governor and the director of finance, for the work of (CIRM staffer) Lynn Harwell, who has been instrumental in executing on this plan, for (CIRM directors) Ted Love and Marcy Feit, who have been on the bond finance credit committee of the state with me. And we are thankful and very appreciative of the fact that we'll be able to honor our strategic plan and have the flexibility during that time to use reserves that are set up specifically to respond to new scientific developments that are certainly expected to arise at various times during that cycle.

“Chairman Goldberg: Thank you, Chairman Klein.”

Eve of the CIRM Election: Klein Invokes Sudden Financial Warning

CIRM Chairman Robert Klein today sounded an urgent, financial alarm in his bid to be re-elected to a new term at the $3 billion California stem cell agency.

In a “statement of candidacy” on the CIRM Web site, Klein indicated he was needed at the agency to handle a sudden, new quasi-crisis that requires action next month. And in an effort to make it easy for directors to choose him at their meeting tomorrow at Stanford University, he also reduced his proposed term to three to six months, down from 12 months. However, he did not renew his pledge not to take a salary, which could hit $529,000 annually.

Several items concerning Klein's candidacy were fresh in the statement. One was the financial warning from Klein, who portrays himself as something of an expert on government bond financing. He said that the agency needed to move swiftly on new issuance of new state bonds, CIRM's only source of financing.

At their meeting just last Wednesday, CIRM directors heard no mention of the problem, only a routine budget presentation with no indication that quick action was needed.

But in his message dated yesterday, Klein said it was “essential”for CIRM to quickly provide assurances of “reliability of our funding.” He wrote,

“The (state) Treasurer's office has just informed us that the next California Stem Cell Research and Cures Finance Committee meeting must be held in January 2011. 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 also said that “our collaborative funding partner nations” require early next year “assurances of our future performance.”

It is not the first time Klein has sprung a January financial surprise on directors. In January 2009, he unveiled a critical bond funding problem that directors also had not been informed about earlier.

(See here, here and here.)

Another new item in the candidacy statement was Klein's promise to only serve three to six months, although it is not clear that the board can elect a chairman for anything less than the six years specified by law. Previously Klein promised to serve only 12 months. Significantly, in the otherwise fairly detailed document, he did not renew his promise not to take a salary. Currently he receives $150,000 for halftime work and is entitled up to $529,000 annually

Klein, a Palo Alto real estate investment banker, additionally backed away from his position that he can only be replaced by a nationally known scientist. Instead, he said he would work with the board to develop criteria for selection of a new chair.

Klein also pledged to “change the communications paradigm,” which encompasses the agency's public relations efforts. He cited an example of a 3 million, “affinity group” email effort during the 2004 election campaign for Prop. 71 as something he would like to replicate. Klein said that CIRM's communications should be changed “from our highly refined scientific focus (with emerging, quality public components) to a broad and innovative program that will be meet our obligation to inform all Californians of the milestones of progress we have achieved.”

CIRM Financially Secure Into Summer 2011

SAN FRANCISCO – Directors of the California stem cell agency today heard some good financial news – $55 million worth – that will keep them out woods through the summer of 2011.

John Robson, CIRM's vice president for operations, reported that the agency has enough cash on hand to pay for its grants and operations into the first quarter of the 2010-11 fiscal year. Previously, he had predicted that money would run out around June of 2011.

Robson explained that much of the additional cash was discovered as a result of closer accounting of the results of a state bond sale in spring 2009. Additional cash became available because of delays in completion of four stem cell labs that are partially funded by CIRM. He also said more accurate financial information is being generated by a new grants management system.

CIRM relies on state bonds for its funding. Presumably it will receive another jolt of cash in the next 18 months as the result of additional bond sales.

Robson additionally reported that the Buck Institute, which has not been able to raise matching funds for its $21 million CIRM lab grant, has decided to begin construction regardless. Robson said that if Buck does not receive $15 million in matching funds from federal stimulus cash or philanthropy, it has decided to take on additional debt for the project.

CIRM Reassures Grantees on Their Cash

Late Friday, the California stem cell agency sent the following email to CIRM grantees:

"We at CIRM headquarters want to send you some reassuring news regarding CIRM’s finances and our plans to continue a full and robust research portfolio. This week the California State Treasurer successfully sold $6.85 billion in bonds, more than twice the amount originally sought by the treasurer. This vote of confidence by the investor community is good news for CIRM, our grantees and all the patients in California and elsewhere we seek to serve.

"Robert Klein, chair of the CIRM governing board, thanked the State Department of Finance and the State Treasurer’s Office for their tremendous efforts. He indicated that the estimated $275 million in additional funds expected for the agency raises the funds available for grants and facilities to some $400 million and this will cover all commitments, existing and expected, for the next 18 months."

More on the $505 Million for CIRM

The San Francisco Weekly, which produced a thorough overview of CIRM earlier this month, today picked up our report on the $505 million cash infusion that is expected to bail out the California stem cell agency.

Peter Jamison wrote,

"CIRM spokesman Don Gibbons said he could not confirm (David) Jensen's figures, because the agency has received nothing in writing from the state treasurer. However, Gibbons said CIRM 'has indications' that the report is accurate and hopes to make a definitive announcement at a board meeting next week in Los Angeles. Jensen quoted Robert Feyer, bond counsel to the treasurer's office, as confirming that $505 million was set aside for CIRM and would be available next Tuesday."

State Bond Sale Provides $505 Million for CIRM

The California stem cell agency, once on its way to running out of money by next fall, is now slated to receive $505 million as the result of the sale this week of $6.86 billion in state bonds.

Robert Feyer of Orrick, Herrington & Sutcliffe, bond counsel to the state treasurer, told the California Stem Cell Report,

"I can confirm for your readers that the large state bond issue which was priced today (total of $6.855 billion) includes $505 million for the stem cell program. This money will be available next Tuesday, when the transaction closes."

CIRM Chairman Robert Klein is likely to discuss the impact of the funding at next week's board of directors meeting in Los Angeles. Feyer said that a "good portion" of the bond cash is expected to go for facilities grants. It is not clear whether CIRM will give up its plan to market state bonds privately.

CIRM relies almost totally on state bond funding. The measure that created the agency, Prop. 71, specified the nature of the funding so that CIRM did not have to ask the legislature and the governor for cash. Because of its budget crisis, California, until recently, had not sold any bonds since last June.

CIRM to Hand Out $60 Million Next Week in Move Towards the Clinic

Directors of the California's financially troubled stem cell agency are likely to receive a bit of good news one week from today as they meet in Los Angeles to give away $60 million for projects to push stem cells into the clinic.

CIRM has been suffering from a cash crunch, but today the state of California is going to market with as much as $4 billion in taxable bonds. CIRM is on tap to receive a good chunk of that, probably enough to keep it from running out of funds by this fall.

The bond sale is not mentioned in the formal agenda, but Chairman Bob Klein will certainly discuss it along with his plan to sell state bonds privately on behalf of the $3 billion enterprise.

The directors are also scheduled to approve 10 grants totaling $60 million for early translational research. CIRM says the awards

"...are designed to move promising basic research in stem cell science toward the clinic. These awards will support two categories of projects including research that: 1) results in a development candidate that meets an unmet medical need; or 2) addresses a significant bottleneck in the translation of stem cell biology that hinders advancement of effective, novel cell therapies to the clinic."

The topic of the awards could trigger general discussion of the direction of CIRM and its strategic plan, although the plan is not on the agenda. CIRM President Alan Trounson may bring it up during his report to the board.

CIRM's direction recently came under review in a piece in the San Francisco Weekly that was headlined "Stem-cell stalemate: The push for cures may produce only disappointment - or worse."

Also on tap is the proposed co-sponsorship of the 2010 San Francisco convention of the International Society for Stem Cell Research. The latest price tag for that is $250,000, down from $400,000. CIRM has said it will help the group raise $150,000, a move that drew some fire from John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca.

Also on tap are evaluation procedures for CIRM's chair, vice chair and president along with consideration of two pieces of federal legislation and the proposed NIH rules for human embryonic stem cell research (see "CIRM and the NIH").

As usual, CIRM has not provided any links or background information on all these issues on the agenda on its web site. That means that the public is hard pressed to determine the significance of the cryptic listings of matters to come before directors of the world's largest source of funding for human embryonic stem cell research. Without some frame of reference, interested parties – be they business, academic or otherwise – find it difficult to determine whether their enterprises are being affected.

Although Klein has repeatedly pledged to adhere to the highest standards of openness, CIRM's chronic failure to post background material in a timely fashion demonstrates the bankruptcy of that pledge.

We are asking CIRM whether there are issues or other problems that we do not understand concerning the failure to post background material.