Hooha over CIRM Salaries: Cheap Shot or Legitimate News?

High government salaries are a tender, tender subject.

But are they legitimate news? An anonymous reader on Wednesday raised the question in a comment on the "public salary outrage" item on the California Stem Cell Report. The article dealt with a news story about the $400,000, part-time salary for new CIRM Chairman Jonathan Thomas.

The reader said, among other things,

"Media coverage like this has to be counted as something of a cheap shot."

The reader went on to say that the salary is not out of line with what medical school deans and top level researchers are paid.

The reader's remarks are somewhat ambiguous. It is not clear whether he or she is focusing on the Los Angeles Times story, the California Stem Cell Report's items on the subject or the public reaction based on comments on the Los Angeles Times' web site.

Let's assume that the main focus is the original Times story, which portrays Thomas' salary as excessive, comparing it unfavorably it to the much lower pay of the governor and the head of the NIH. The public reaction on the subject flows from that article by reporter Jack Dolan.

A case can be made that Thomas and CIRM President Alan Trounson ($490,000 annual salary) are paid at roughly the same level as a University of California medical school dean. Sam Hawgood, dean of the UC San Francisco medical school and a member of the CIRM board, for example was paid $572,896 in 2009, according to a Sacramento Bee database. However, CIRM's Thomas and Trounson preside over a staff of about 50 with a budget of about $18 million. Contrast that to Hawgood's staff of about 10,000 employees and budget of $1.52 billion.

However, those sorts of facts are somewhat beside the point when it comes to the news value of high state salaries. What makes them news is how they affect the public debate about government spending, perceived bureaucratic waste and ultimately the future of CIRM. Substantial segments of the California public exhibit an intense, visceral and hostile reaction to what they view as excessively generous compensation. In this case, it is a public that may well be asked to vote to give more billions to the stem cell effort in a few years. That's a reality, however unpleasant, that CIRM must deal with.

How the agency handles the issue is news as well. If CIRM cannot reframe the discussion, the entire campaign for the bond ballot measure may well center on CIRM salaries. The result could be "extinction" of CIRM, as the Los Angeles Times said Thursday in an editorial.

The California Stem Cell Report has discussed on more than one occasion both the nature of the public reaction to generous government salaries and the predilection of the mainstream media to zero in on them. Last July we wrote,

"What is important here is what the voters perceive as lavish or greedy – not the perceptions of recipients or the perceptions of those who approve the pay."

Last spring, the entire CIRM board of directors indirectly acknowledged the public relations problem with the salaries when it approved a dubious scheme to paper over them by channeling $250,000 in funds from private donors to Thomas' paycheck. If the salary is a mistake, the second mistake is trying to hornswoggle taxpayers into believing that they are not paying for it when all the funds come from public coffers.

To one former longtime newspaper editor, John M. Simpson, now stem cell project director for Consumer Watchdog of Santa Monica, Ca., coverage of CIRM salaries is not only appropriate but necessary. In a statement to the California Stem Cell Report, he said,

"It's not a cheap shot to report what salaries taxpayers are paying their public servants. It's simply basic watchdog journalism. If this sort of reporting had happened in the mainstream media before the vote, perhaps the outcome would have been far different."

Simpson continued,

"Perhaps the (medical school) deans on the (CIRM) board weren't troubled by the eye-popping salary because they make so much themselves. They need to think like the average person when evaluating salaries. It's clear that a well-qualified candidate was available at a fraction of the cost."

Nonetheless, in some ways, the hooha about salaries is a sideshow. The money amounts to only a tiny fraction of the $3 billion that CIRM is handing out. Meanwhile, other difficult issues remain unexamined by the mainstream media including:

• Conflicts of interest on the part of scientists who make, in secret,  the de facto decisions on grants,
• CIRM's strategy, including whether CIRM has missed or is missing profitable areas of research, as well as management of its grant portfolio, including whether the agency has the stomach to pull grants from big-name, non-performing scientists and
• CIRM's grant management system, which remains a work-in-progress, and needs close attention by directors, particularly with an eye to protecting IP and proprietary information from unprincipled biotech companies and hackers.

Simpson's complete remarks can be found here. The anonymous reader's comments about "cheap shots" can be found at the end of "outrage" item.

Here is an updated reading list on CIRM salaries. More information can be found by searching on the Internet used the terms "cirm salaries" or "california stem cell salaries."
CSCR Reading List: Compensation at the California Stem Cell Agency

Minimal Donor Restrictions on Use of Funds by CIRM

Reader Jim Fossett today raised a good point in connection with the use of donated funds by the California stem cell agency, some of which is going to pay the new chairman's salary.

Fossett said in a comment that donors may place restrictions on the use of their donations, which do not amount to a great deal of money relative to CIRM's $3 billion. (Fossett's full comment can be found at the end of the "private money" item.) The agency currently has about $2.8 million in donor funds on hand, but has committed $700,000 of that for an Institute of Medicine study of CIRM and $250,000 annually for the chairman's salary.

We asked CIRM's outside counsel, James Harrison, whether any donors had placed restrictions on the funds.

Harrison promptly replied,

"Some of the donors placed restrictions on the use of their funds. For example, donations from private foundations include a restriction on the use of funds for lobbying purposes. I don't recall any other restrictions."

The reason for the restriction on lobbying expenditures? Some nonprofits can endanger their nonprofit status if they engage in lobbying activities.

On another donated fund note, Nature magazine on June 29 carried a statement from Jonathan Thomas, the CIRM board's new chair, saying,

"CIRM has received close to $900 million in private donations above and beyond the money from private-bond proceeds."

We asked CIRM Communications Chief Don Gibbons about that figure. He replied,

"He(Thomas) was referring to the $880 million in donor and other leveraged funds that our 12 major facilities attracted. So, those were not donations to CIRM, rather donations to CIRM-backed projects that benefitted the state."

Politics and Stem Cells California Style: More to Come in the Next Few Years

Seven years ago, backers of the ballot initiative that created the $3 billion California stem cell agency promised that it would take the politics out of stem cell research.

But, as the directors of the research enterprise discovered last month, that is far from the case. California Gov. Jerry Brown and state Treasurer Bill Lockyer exercised their governmental perogatives and lobbied persuasively on behalf of their nominee, Jonathan Thomas, to chair the board for the next six years.

Some of the 29 board members looked askance at what they regarded as arm-twisting. They noted that the formal name of the CIRM governing board is the Independent Citizens Oversight Committee and placed the emphasis on the word "independent." But, like other parts of Prop. 71, the name is more of a political marketing gimmick aimed at voters in 2004 than a reflection of reality.

The fact is that when you have your snout in the public trough, you are always subject to political pressures. That is the nature of government in the United States.

Nonetheless, we should add that former CIRM Chairman Robert Klein, a real estate investment banker, and a handful of his associates who drafted Prop. 71, have been successful in isolating the stem cell agency from other political maneuvers – well-intentioned or otherwise. Under the initiative, the governor and state lawmakers cannot get their hands on CIRM funds or fiddle with its budget. Another provision of Prop. 71 mandates that even the tiniest changes in the law dealing with CIRM require the same kind of supermajority vote that has crippled California's state budget process. Some of Prop. 71's provisions cannot even be changed short of another vote of the people.

All of which has a downside. Under the ballot measure, CIRM dodged conventional state budgetary funding. Instead it required funding through state bonds – borrowed money that flows directly to the agency. But with interest, that means that a $20 million research grant really costs California taxpayers roughly $40 million. And the $490,000 salary of CIRM President Alan Trounson really costs nearly $1 million.

While some CIRM directors took umbrage at the lobbying by Brown and Lockyer, one should expect no less from public officials who have a keen sense of both their power and responsibilities. They are elected because voters generally trust their judgment – at least at the time of the election – and expect them to exercise their authority. Indeed, do-nothing lawmakers are one of the reasons the public is less than enchanted with affairs under the Capitol dome.

As for the next six years, directors of the stem cell agency will be increasingly immersed in political and electoral matters if they want to extend the life of CIRM beyond 2017 or so, when bond funds will run out.

By electing Thomas, CIRM directors clearly indicated their priorities are cash. They are concerned with both short and long term financing of the agency. "Without money, there will be no research," one director told the California Stem Cell Report. Thomas has made a career in bond financing. His scientific background was minimal when compared to rival candidate Frank Litvack, a cardiologist and medical science enterpreneuer.

Thomas is talking about raising money privately, but the main source of funds will be billions more in state bonds. That will require voter approval, and right now that is extremely unlikely given the state's financial crisis and CIRM's limited accomplishments, which have little public visibility. To persuade voters in 2014 or 2016, the agency will need results that will resonate with the public, creating a virtual rush to provide more billions to CIRM.

One of Thomas' major initiatives is do just that, through both aggressive funding of research more likely to produce a clinical therapy and better marketing of the agency to the public. A "communications war" is how he describes it. The agency is now seeking a $200,000-a-year public relations field marshal to direct it.

CIRM will be dancing close to the edge in terms of appropriate use of public funds. Electoral campaigning on the taxpayer's dollar is generally not acceptable and can even be illegal. At the same time, the agency has a responsibility to inform the public about its activities. Should the agency slip over the edge, it could generate a scandal that could doom a new bond measure.

CIRM must also move so that a bond measure will be supported by the governor, treasurer, controller and lieutenant governor, the very same Democratic political officials who nominate candidates for chairman and appoint many of the CIRM board members. The preferred position would be one of support although neutral would be tolerable. Outright opposition by the governor, which is conceivable given the state's financial condition, is likely to be fatal for a bond measure.

Then there is the matter of raising anywhere from $30 to $40 million or more to actually finance the ballot campaign. Who will be the major donors? Will they represent or have ties to current applicants or future applicants for CIRM's billions? Another touchy issue.

Thomas is short on political experience, but standing by is CIRM's Co-vice Chairman Art Torres, former head of the state Democratic Party. In the wings as CIRM's chairman emeritus is Robert Klein, who headed the 2004 campaign for Prop. 71, although his role is likely to be circumscribed at the agency if Thomas is to be truly effective.

The California stem cell agency has made a significant mark in the world of stem cell science, according to its supporters, although it has not fulfilled the generous and overstated promises of the 2004 campaign. Thomas' political and financial challenges are daunting. That is not to mention major scientific issues as well as the strategic direction of CIRM. If Thomas is not successful, the Los Angeles bond financier could be well be the last chairman of the California Institute for Regenerative Medicine.

Private Money for Stem Cell Agency: 'Not That Simple'

The new chairman of the California stem cell agency, Jonathan Thomas, is talking about raising vast sums of money from the private sector to support CIRM's research efforts – enough to significantly reduce the size of another state bond measure that could run as high as $5 billion.

The proposal may be necessary at a time when state government is slashing services for the poor, elderly and children, but it raises a number of major ethical questions. Coincidentally, the Los Angeles Times last week addressed some of those questions, albeit in a different area of government.

Here is what Thomas told Nature magazine,

"I think that the agency could put together a non-profit fund into which would go donations from individuals of high net worth or medical foundations. If it is very successful you might reduce the amount of general-obligation bond authorization that you would go for in 2014 or 2016."

On July 1, The Times editorialized on the matter of private funds going to help support the governor and schools. It also suggested some common sense rules that should be applied in such cases. The Times said,

"Last Sunday(June 26), The Times reported that Gov. Jerry Brown has been taking thousands of dollars each month from donors to pay the rent on his Sacramento loft, while refusing his official state housing stipend.

"In the same day's paper, it was reported that as part of a "public-private partnership," corporations and foundations would pay several million dollars toward the successful Summer Night Lights anti-gang program in L.A. parks this year. And a few weeks earlier, the paper noted that the Los Angeles Unified School District was taking money from developer Eli Broad, entrepreneur Casey Wasserman and the Bill & Melinda Gates Foundation to pay the salaries of about 20 top officials in the school bureaucracy.

"In each of these cases, government officials are accepting private dollars to cover the kind of costs that used to be borne by the taxpayers. And why shouldn't they? Times are tough and money is scarce. The state and city are cutting billions of dollars' worth of vital services, and struggling Californians seem strongly disinclined to tax themselves further to pay for the common good.

"So if a generous, civic-minded citizen like Broad, or a rich corporation like Wal-Mart or AT&T, offers to step forward to fill some of the gaps, it would be foolish to say no, right?

"Unfortunately, it's not always that simple."

The Times noted that donors may be seeking to curry favor with the governmental recipients. They may seek contracts or simply priority access to important governmental agencies or officials. Their donations could skew the actions on the part of the recipients. The Times did not say private donations should be barred but came up with a "few basic rules" to help address what may be a burgeoning trend in California government.

The proposed "rules" represent something for the CIRM board to consider as it moves ahead on financing issues. Here are the rules in abbreviated form.

• "When private donors give money to help government do its job, the law should require that the donor's name and affiliation be disclosed. (In the case of CIRM, it should simply disclose the names as it has in the past and not wait for passage of a new law.)
• "Private donors should be required to disclose whether they have any direct interest in pending legislation or are seeking government contracts or other assistance. Transparency is essential so the public can make judgments about potential conflicts of interest."
• "If private money is accepted, it should be used to advance the goals of the government, not the giver."
• "Private money shouldn't pay the personal expenses of public officials or enrich them in any way."

The Times concluded:

"All in all, the system works best when government pays for government. Not only is it ethically complicated to rely on private dollars, but even Bill Gates and Eli Broad don't have enough money to fund California for very long. The state's voters have to acknowledge eventually that if they still want to live in a first-class state with the kind of services they've long been used to — great and affordable state universities, safe streets, magnificent parks, public schools that rival any in the nation, and a safety net for those who fall on hard times — they're going to have to pay for those things. For too long, Californians have been encouraged by politicians to believe that they can have all the services they want without the responsibility of paying for them. That myth has been shattered. And there aren't enough white-knight billionaires to make up the difference."

CIRM's New Chair to Sell Stem Cell Stocks Shortly but Continue Link with Bond Firm

The new chairman of the $3 billion California stem cell agency, Jonathan Thomas, says he will soon sell his interests in a California stem cell company but will retain his financial ties to a bond investment firm, pending a double-check with the agency's outside counsel.

As part of his pitch for the $400,000 post as the chair of CIRM, Thomas, a bond financier and partner in Saybrook Capital of Santa Monica, Ca., said he led an earlier round of financing for Advanced Cell Technology, also of Santa Monica, Ca. He said he still owned a "small portion" of the company's stock and was prepared to liquidate it to avoid any conflicts. He also said he has no other "actual or potential conflicts."

The California Stem Cell Report queried Thomas via email concerning the timing of the sale and also his relationship with Saybrook. The firm posted a news release this week congratulating Thomas and declaring that it was looking forward to a continuing and flourishing relationship with him.

In response to our query, Thomas, who is being paid $400,000 a year for 4/5 time by CIRM, said,

"With respect to ACT, I will be selling my interests very shortly.  Re Saybrook, we don't buy or underwrite (nor have ever bought or underwritten) any State of California GO's (state general obligation bonds).  No conflict of any kind there.  Re severing ties with Saybrook, I have been previously advised that there are no conflicts maintaining affiliations with the firm.  Just to get additional input on both issues, though, I will check again with (the CIRM) Board counsel and advise."

(Thomas later said that no conflicts existed with Saybrook and indicated he was continuing his financial relationship with the firm.)

Advanced Cell Technology reportedly applied for a loan in the $50 million CIRM clinical trial round this spring. No action was reported on the application, but financial scuttlebutt has it that ACT is line for a CIRM loan later this year.

As for the California state bonds, the stem cell agency relies on the state to borrow money for its funding and has no other real source of cash. Saybrook specializes in distressed government bonds. Currently California has the lowest bond rankings of any state in the nation.

Prior to the election for chairman, we asked the CIRM board counsel, James Harrison of Remcho Johansen & Purcell of San Leandro, Ca., whether the board required the chair candidates, including Thomas, to file a written disclosure of financial interest. Harrison said,

"We have discussed the state's disclosure and disqualification rules with both candidates."

But he said no written disclosure was required in advance of board action.

As of this year, the stem cell agency has begun posting the state-required financial disclosure forms of its board members and top officials. Thomas is required to file his within 30 days of assuming office, which would be July 23.

As chair, Thomas will be working with the office of state Treasurer Bill Lockyer, who controls the sale of state bonds. One of the mechanisms Thomas will operate through is the California Stem Cell Research and Cures Finance Committee, a six-member body created by Prop. 71, which also created the stem cell agency. The committee determines whether it is "necessary or desirable" to sell bonds for CIRM. In addition to sitting on the committee, Thomas can appoint two members. The other members are the state treasurer, state controller and state director of finance.

In its press release on Thomas, Saybrook said,

"'JT (Jon Thomas) is the best man for the job. I’ve known him since our high school tennis days and he brings an impressive skill set to the position,' said Jon Schotz, partner at Saybrook Capital, LLC and Jon Thomas’s graduate school roommate at Yale.

"Jonathan Rosenthal, also a partner at Saybrook Capital, LLC says: 'I couldn’t be happier for JT. We’ve had a wonderful partnership and friendship for the past 20 years and expect that it will continue to flourish.'"

Race for the Chair: Political and Financial Pressure Help Thomas Win CIRM Chairmanship

SAN DIEGO, Ca. –- Directors of the $3 billion California stem cell agency late yesterday evening elected Los Angeles bond financier Jonathan Thomas as chairman of the unprecedented research enterprise as it strives to fulfill seven-year-old campaign promises to turn stem cells into cures.

The board voted 14-11 to choose Thomas over Frank Litvack, a cardiologist/businessman, also from Los Angeles. The vote came with no debate following a three-hour closed session. Each candidate appeared separately in private, followed by a discussion among board members, also in private. Only one member of the public spoke out on the election during the public portion of tonight's meeting, during which each candidate read a statement.

The California Stem Cell Report was told that Gov. Jerry Brown's office called six members of the CIRM board during the past two days and managed to switch some members from Litvack to Thomas. The governor's office did not respond to queries about the matter.

Outgoing Chairman Robert Klein said the key factor in the vote was the state's current financial crisis and its possible negative impact on CIRM, which depends solely on state bonds for cash. Earlier Thomas sounded an alarm about CIRM finances, telling directors it was necessary to move to assure financial stability. CIRM faces both short and long term financing problems. Thomas could be the last chairman of CIRM unless he and the board devise a way to finance it beyond 2018, roughly the date when the agency runs out of money.  (For more on Thomas' remarks, see here.)

Klein told the California Stem Cell Report that Thomas would be paid something in the range of $390,000 to $395,000 annually for 80 percent time on the job. (The agency later said the correct figure is $400,008.)

Thomas is chairman and co-founder of Saybrook Capital of Santa Monica, Ca. The firm specializes in distressed government bonds. The current state budget crisis in California has left the state with the worst bond rankings of any state in the nation. State Treasurer Bill Lockyer, who controls the sale of state bonds, and the governor and lieutenant governor all nominated Thomas.

On Monday Lockyer sent a strong letter to his five appointees to the CIRM board urging them to vote for Thomas. He said the bond financier was the only candidate with a "complete toolkit" for the job. Lockyer stressed Thomas' background in bond financing.

Unless CIRM receives funds from a fresh bond sale, it will run out of cash in the middle of next year. However, the state is limiting its bond sales because of its budget crisis. CIRM will face tough competition to have its bonds placed in the two sales rounds expected to come up in the next 12 months. .

Some observers interpreted Lockyer's letter as a veiled warning to the entire 29-member board to approve Thomas, with the letter implicitly raising the possibility that the agency could come up short in the next bond rounds.

Longer term, CIRM has only about $1.4 billion or so to hand out for grants or loans. Klein has touted a $3 billion to $5 billion bond measure that would be presented to voters sometime during the next few years. To win support of the proposal, the agency will need a record of substantial accomplishment that resonates with the public.

During Thomas' six-year term, the agency will also have increasing responsibilities for monitoring its massive and growing grant portfolio. The task will become more challenging with larger and more complex grants and loans that have achievement benchmarks that must be met. If not, CIRM is supposed to withdraw its cash. At the same time, the agency continues to wrestle with its computerized grant management system.

To accomplish its goals, CIRM is working ever more closely with the biotech industry. Some industry executives have been dismayed at the tiny fraction of funding that has gone to businesses. A blue-ribbon review panel last fall cited the need to bolster funding for industry. At the same time, the taxpayer-funded agency must assure that the state receives full value for its dollar.

Litvack also had a blue-ribbon business resume along with a record of scientific accomplishment. One description calls him a "serial entrepreneur." He was CEO of Conor MedSystems of Menlo Park, Ca., when it was sold a few years go to Johnson &  Johnson for $1.4 billion. More recently he has been involved with Pervasis Pharmaceuticals and Capricor, Inc.

Litvack touted his scientific and business experience in developing new products and running the FDA gauntlet. State Controller John Chiang, who recently gained national attention for cutting off the pay of California legislators because they failed to pass a balanced budget, nominated Litvack. Chiang said,

"Litvack knows from personal experience what it takes to develop new medical technologies and move them through the regulatory process to adoption in the market place."

Thomas Stresses His Bond Expertise, Cites State's Dicey Financial Condition

Jonathan  Thomas, a candidate for chair of the $3 billion California stem cell agency, tonight hammered away at the value of his bond financing experience and what it could bring to the survival of the research enterprise. 

Speaking to the CIRM board, Thomas, a Los Angeles bond financier, hit on many of the themes sounded by state Treasurer Bill Lockyer in his letter on Monday. Lockyer nominated Thomas for the post. In his letter, he said Thomas was the only candidate who had a "complete toolkit" for the job. 

In his comments, Thomas repeatedly said he had "all" the qualifications for the job. Lockyer, in fact,  underlined all in his letter when he referred to Thomas' qualifications.. 

Thomas spoke candidly about CIRM's financial condition. He asked whether CIRM will have funds available after 2017, a reference to CIRM projections that its $3 billion will run out about then. Thomas said the state is in a "full out fiscal crisis." As a result, a "real possibility" exists that CIRM will not have "timely access to the funds it needs."  He said the the agency may have to look to other sources of funding.  

"Let's not kid ourselves. This problem could last for a long time," Thomas said. 

The board has not heard that sort of candid public comment about its finances recently, although the warning signs have been there for some time. 

Thomas also addressed the dual executive issue. He said the CIRM chairman and president should have complementary positions -- not overlapping. He said he spoke with CIRM President Alan Trounson on Sunday and would expect to have a complementary, highly collaborative arrangement with him. 

Thomas brought up the statement by Frank Litvack, the other candidate for chair, that he would serve in a parttime role. Thomas said the position demands more time than that offered by Litvack. 

We have asked Thomas for a copy of his remarks. He said his only copy was marked up and said he would provide one tomorrow. 

Race for the Chair: Litvack Discusses "Black Box" of Bond Financing

SAN DIEGO, Ca. – Los Angeles cardiologist and businessman Frank Litvack tonight made a final pitch to directors of the California stem cell agency to become the next chairman of the $3 billion research effort.

In remarks prepared for delivery, Litvack stressed his business experience during which he said he raised hundreds of millions of dollars. He noted that his enterprises were all high risk ventures and were not "back-stopped by the faith and credit of the state of California," a reference to the state bond funding behind CIRM.

He also reviewed his work in developing new products and his dealings with the federal agencies that regulate them.

Litvack reiterated much of what he has told the board previously, including his commitment to serve as more of an oversight chairman rather the engaging in day-to-day management. Prop. 71, which created the stem cell effort, set up a much-criticized dual executive arrangement with overlapping responsibilities for the chairman and president.

Litvack also addressed the "black box" issues raised by state Treasurer Bill Lockyer and others concerning the need for bond financing experience. (See here and here.)

Litvack said,

"In the spectrum of financial instruments, state bonds are not considered complicated. In fact, they are among the most simple."

He reviewed the current state financial situation and how state bonds work. Come next spring, Litvack said,

"Should the unthinkable happen, as it occasionally does, and there is no (state) budget by next year, then CIRM will need to assume the mentality of a start-up venture and get creative....One might consider a private placement (of bonds) if permitted. As with any form of financing, it is not the mechanics that is rate-limiting. Rather it is the ability to clearly articulate the vision to the prospective investors."

Other new proposals surfacing in Litvack's remarks included:

• CIRM-sponsored meetings between venture capitalists and promising stem cell companies to help generate much-needed funding for the businesses.
• Possibly selling industrial development bonds, which are aimed at building businesses in a particular region, to help finance clinical trials.

For more on Litvack's background and previous statements, see here and here and here.

Race for the Chair: Blowback, Politics and CIRM Financing

A strongly worded letter from California state treasurer Bill Lockyer concerning this week's election of a new chairman of the state's $3 billion stem cell agency could be triggering a bit of blowback for the candidate backed by Lockyer.

The letter advised all five of Lockyer's appointees that he is a vigorous supporter of Jonathan Thomas, a Los Angeles bond financier who was nominated for the chairmanship by Lockyer, the governor and lieutenant governor, all Democrats. The only other candidate is Frank Litvack, a Los Angeles cardiologist and businessman, who was nominated by the state controller, also a Democrat. The 29-member CIRM board meets late this afternoon in San Diego to choose between Litvack and Thomas.

Lockyer's preferences carry more than normal weight for the entire CIRM board because he is the gatekeeper on the sale of state bonds, the only real source of cash for CIRM. Lockyer becomes even more important since the agency will need a fresh dose of funding by next spring. The state plans to limit its bond sales during the next 12 months because of its ongoing financial crisis. CIRM is likely to face stiff competition for being placed in the bond rounds when they do occur.

Lockyer's letter disturbed or angered some CIRM board members, based on what the California Stem Cell Report has learned from a variety of sources. But none of the five Lockyer appointees responded to queries.

Political inteference – and nasty at that – was one reaction. Is Lockyer trying to tell the board that CIRM financing would be endangered if his candidate is not approved, wondered another board member.

One thought Klein engineered the letter. However, Klein and Lockyer are not on the best of terms, we understand. Another thought CIRM co-vice chair Art Torres, who is close to Lockyer, could have had a hand in it. Our own speculation is that Lockyer, like any successful politician, wants to see his candidate win and is willing to do what he thinks it takes to produce a victory. Other factors as well could have entered into it.

While the letter has triggered strong negative reaction, it is not clear whether it has changed the positions of fence-sitters. It could have a reverse effect for Lockyer, given the reaction of some board members in the past to other efforts at what they regard as outside intrusions into CIRM affairs.

Rumblings persist that CIRM Chairman Robert Klein, a real estate investment banker, continues to work on behalf of Thomas. However, CIRM's outside counsel, James Harrison, has strongly denied that on behalf of the outgoing chairman. Klein, however, is reportedly once again talking about the private placement of CIRM bonds and the need to have a chairman who could do that.

One board member reflected on Klein's unsuccessful attempt last fall to engineer the selection of his own successor. The pitch then was "science science science." The CIRM director said,

"Now it is bonds bonds bonds, legal legal legal. Full time is the only way possible and paid paid paid, and the only way CIRM can be governed is as it was written in the gospel of Prop. 71."

The reference to fulltime and paid is to Thomas' reported desire for a salary in the range of $400,000-plus, working at 80 percent or more time. Litvack says he would work parttime for a salary around $137,000. Another separation point on the men is Thomas' apparent support for continuing the much-criticized dual executive arrangement at CIRM while Litvack has indicated he sees the chairmanship as much more of an oversight function. Of the two, Litvack has a stronger scientific background while Thomas has more experience in bond financing.

One question arose about the public nature of Lockyer's letter with more than one board member saying the treasurer could have delivered the same message to his appointees privately with a phone call, letter or email. Copies of the letters were emailed Monday to the California Stem Cell Report by the treasurer's office. We have a standing request into the treasurer's office and others for any information regarding the chair election.

As for the politics in the matter, Thomas is reportedly being backed by by former California state Treasurer Kathleen Brown, who is now chair of investment banking for the Midwest for Goldman Sachs. She is also sister of California Gov. Jerry Brown and a personal friend of the candidate. The governor nominated Thomas for the post in a terse, 56-word letter. Thomas also reportedly has the support of Congressman Howard Berman, a longtime West Los Angeles Democratic politician.

Klein, who controls the CIRM board agenda, has allotted only 30 minutes for public presentations and public comments by the candidates beginning about 5 p.m. tomorrow. Then comes an executive session, allotted about 60 minutes, after which the formal public vote would be swiftly taken. The CIRM board agendas are always full, but the one for the meeting this week is especially jammed with major items. Several board members are not pleased with the tight schedule and wonder whether it is part of an effort by Klein to limit discussion and ensure favorable action on Thomas.

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

The Race for the Chair: Weaning CIRM From Government Support

Cardiologist Frank Litvack, a candidate for chair of the $3 billion California stem cell agency, has suggested that CIRM seriously consider how it could fund its research without relying on the state of California.

In his second statement to CIRM directors, Litvack, who also has a long career in business, on Monday covered much of the same ground that he did last week. But he was more specific when it came to what on Friday he called "evergreening" CIRM. Litvack said,

"Further thought should be given to the concept of getting CIRM to be partially or wholly self-funded in the future. One such method might be getting upside participation in the financial success of its grantees. Recently the federal government was quite successful in this regard during the banking, insurance and auto bailouts. I realize that each of these topics is replete with opinions as well as with controversy. Nonetheless, they need to be further explored and developed."

Taking CIRM or any government agency department private may seem a bit of a reach to some. However, CIRM is one the few state departments that has the legal ability to create a nonprofit organization. Such an organization could serve as springboard for weaning CIRM off government financing. Of course, the tough part is raising the money.

Here is the full text of Litvack's remarks on Monday.Remarks by Frank Litvack to CIRM Evaluation Subcommittee June 6, 2011

Latest California Budget Proposal Not the Best News for CIRM

California Gov. Jerry Brown is proposing a "dramatically" reduced sale of state bonds, which are the only real source of income for the California stem cell agency, during the coming fiscal year.

His plan was contained in what is the known as the May revise of the governor's budget. Randall Jensen(no relation to this writer) wrote today in The Bond Buyer, a newswpaper devoted to public finance, that the plan is part of an effort to reduce what Brown called California's $81 billion "wall of debt."  Jensen said,

"The state already skipped its usual springtime general obligation bond issue at Brown’s behest. The revised budget proposal calls for selling only about $1.5 billion of GO (general obligation) bonds in the fall, as the state’s only GO issue of calendar year 2011, after selling $10.5 billion of GOs in 2010."

Brown also proposed a $2.4 billion bond sale in the spring of 2012. He said the state currently has a backlog of $48.2 billion in unsold bonds.

If CIRM bonds are not part of the fall sale, it could lead to a cash flow crunch at CIRM, which says it has only enough funds on hand to meet its current commitments through about June of 2012. Competition for inclusion in the bond sale is likely to be stiff.

Brown's bond sales plans also assume enactment of his budget. However, Republicans have in the past  successfully blocked tax increases, which are part of the spending plan, because of the requirement of a two-thirds vote for approval.

(Editor's note: An earlier version of this item incorrectly indicated that CIRM had funds through June. The correct date is about June of 2012.)

Legal Wheels Turn: Ban on hESC Funding Temporarily Removed

The nation's stem cell scientists received a reprieve today, courtesy of a federal appellate court that put a hold on an earlier order to halt federal funding of hESC research.

Gardiner Harris of the New York Times wrote:

"The appeals court ruling could save research mice from being euthanized, cells in petri dishes from starving and scores of scientists from facing a suspension of paychecks, according to arguments the Obama administration made in the case. It could also allow the National Institutes of Health to provide $78 million to 44 scientists whose research the agency had previously agreed to finance."

Rob Stein and Spencer S. Hsu of the Washington Post wrote:

"(T)he appeals court made it clear it was not making a final decision about the case, which means the reprieve could be short-lived and the fate of the funding could continue to be whiplashed by seesawing court rulings."

The next court action is not expected to come until sometime after Sept. 20, the deadline for filing additional arguments in the case.

The legal brouhaha makes clear several facts concerning research funding. If you are a scientist, your research is not secure unless you are paying for it yourself. NIH funding is subject to the vagaries of the courts and Congress. Private funding comes with its own set of strings, which generally are not revealed to the public, but they are there. And despite the assurances of the California stem cell agency, its funding can be threatened under some circumstances, as we saw in 2009. CIRM's resources are clearly subject to the state's ability or desire to borrow money and issue the state bonds that are the agency's only real source of cash.

Incident at the Marriott: Stem Cell Agency Bars Public From Meeting

The California stem cell agency barred two academics from entering one of its conferences earlier this week in San Francisco.

The action appears to violate the spirit and probably the letter of the California State Constitution and state open meeting laws. Under section three of the constitution, approved by 83 percent of voters in 2004, members of the public have a broadly construed right of access to what their government is doing. That includes meetings at San Francisco hotels.

The incident involves Tina Stevens of San Francisco State University and and Diane Beeson of California State University, Hayward. Stevens is executive director of the Alliance for Humane Biotech. Beeson is on the board of directors – none of which has to do with whether they should have access. The law entitles the lowliest worker an equal right to government access.

Here is the account that Stevens and Beeson sent to the California Stem Cell Report.

“On Monday, June 14 we went to San Francisco's Sutter Street Marriot Hotel to attend the CIRM - Medical Research Council Human SCNT Workshop. Both academics with long-standing interests in women's health and research policy, we were heading for the session on, 'Procurement of Human Oocytes: What has been the Experience to Date?' Despite the fact that there was no public notice of an upcoming workshop on a topic of sustained interest to women's health advocacy groups, we heard about it via the grapevine and decided to attend. But upon arrival, we were barred at the door. The session on egg procurement had been switched to an earlier morning time slot and already had taken place, we were told. Our printed agenda was outdated. Further, we would not be granted entrance to the meeting underway. Why? It was closed to the public because conferees maintain concerns over protecting their intellectual property. Questions remain. What intellectual property concerns could there be over oocyte procurement policy? Why was the agenda switched up? Why wasn't a workshop concerning egg donation posted on the CIRM website in the first place when the topic is known to be of serious concern to the public, especially to women's health advocates?

“Outside the conference room, hotel staff bustled over luncheon preparations: plump rolls, dome-covered serving dishes and stacks of shiny crockery near folded cloth napkins, multiple gleaming beverage urns. California can't muster tax dollars to fund classes for students at public universities but has managed to finance posh buffets for scientists who've prioritized safeguarding their intellectual property over the public's right to know.”

We sent a copy of their account to Don Gibbons, chief communications officer for CIRM. Here is his response:

“All of CIRM's scientific workshops are by invitation only. These workshops are designed to gather information for critical decisions regarding the direction our funding should take. In order to get the latest, most up-to-date information, we have to assure scientists that their proprietary and unpublished information will not be made public. The workshop this week was not on egg donation, it was on nuclear transfer research and whether or not CIRM should continue to consider funding projects in that field or whether other technologies had made the pursuit of this difficult science no longer necessary. As always, we will be publishing a report from the workshop on our web site.

“The women who wrote to you were not told to leave, they were asked to wait until the staff member managing the event could get one of the senior staff to talk to them. They were asked for their names or IDs so she could inform us of who was making the request and they refused to provide any names or identification.

“Our lunch was simple chicken, tofu with carrots and plain steamed rice. We were offered coffee, tea and water. Hardly posh. When you are asking folks to work for you for free and take a very short lunch break it seems reasonable.”

Our take: We have written more than once concerning problems with CIRM's lack of openness. We have commented on the rampant conflict of interest issues at the agency and its lack of accountability, along with its move towards increasing closeness to the biotech industry. All of which go to CIRM's credibility and the public's trust in the agency. This lastest incident appears to be another case that does not reflect well on CIRM.

CIRM says the meeting was aimed at securing “information for critical decisions” about how it is going to spend taxpayers' money. That subject would certainly seem to be a matter of considerable public interest and justify a public need to know. As for asking for identification, that appears to be a clear violation of state law. The state attorney general's guide to California's open meeting law says agencies covered by the act are barred from imposing “ANY CONDITIONS” on attendance at a meeting.

As for the need to protect intellectual property, proprietary or unpublished information, that claim is simply poppycock. CIRM has not disclosed how many persons were in the closed-door meeting, but it is impossible to keep information secret when even more than a handful of persons is present, and most likely not even then.

Prop. 71, approved by 59 percent of voters in 2004, exempted CIRM from some aspects of the state's sunshine laws. It is not clear whether those exemptions apply in this case. But the state Constitution (section three) was also changed by voters in 2004 to guarantee the right of the public to access. That change was approved by a much larger vote (89 percent) than Prop. 71. It is our understanding that if conflicts exist in such cases, the measure with the larger vote takes precedence.

Legalities aside, it is not in CIRM's best interest to bar persons from any of its sessions – not to mention that it is not in the best interests of the people of California. CIRM needs to do more than meet the minimum standards of the state's sunshine laws. To fail to do so will create a record that will surely harm CIRM's public support and hamper its efforts to secure more funding after it runs out of the $2 billion it has left to spend.

A Tipping Point for CIRM? Reform Recommendations Coincide with Pressing Problems

California's Little Hoover Commission's sweeping report on the state's $3 billion stem cell agency comes at a time when the ambitious research enterprise could be facing a tipping point in its short life.

Recent weeks have seen several significant developments involving the California Institute for Regenerative Medicine (CIRM), which is less than five years old.

• Its chairman, Robert Klein, made it clear he is not going fill the job after 2010.
• Marie Csete, CIRM's chief scientific officer, said she is quitting Aug. 1 for unexplained reasons.
  
• The agency is about to embark on its largest and most ambitious round of research grants, a $210 million effort that Klein has identified as critical.
  
• At the same time, it will launch a related, risky and unprecedented $500 million lending program for the biotech industry.
• Festering questions involving structural and governance issues surfaced in a contentious CIRM board meeting earlier this month.
  
• Revision of CIRM's strategic plan, which has guided it successfully so far, has been moldering for months.
  
• Funding problems – solved for the time being – will arise once again in 2010.
  
• And CIRM staff has identified both the potential loss of key staff and community support as two risks the agency faces.
  

That said, CIRM will have approved $1 billion in grants by the end of this year. It is already the largest source of funding in the world for human embryonic stem cell research. “California has made an investment in innovation that is the envy of the world,” said Daniel Hancock, chairman of the Little Hoover Commission and former president of Shapell Industries.

Nonetheless, said the commission, CIRM can and should do better if some of the niggling and not-so-niggling impediments embedded in state law by Prop. 71 are removed or altered. They include: reducing the size of the unwieldy, 29-member board, adding independent voices to the panel, eliminating the overlapping roles of the chairman and president and beginning the all-important planning for leadership transition. (A list of the recommendations can be found here, excerpts here and the complete report here.)

The commission's report is fair-minded, thoughtful and well-researched. It pointed several times to CIRM's accomplishments and the contributions of Chairman Klein. The commission's recommendations stopped short of seeking another ballot measure, which would be unrealistic and stimulate acrimony from CIRM and its supporters. The good government agency said changes should “be prospective and strategic and minimize disruption that might slow CIRM's ambitious and creative agenda.”

CIRM's reaction was adversarial and defensive, a CIRM tendency that the commission discussed in its study.

The agency reaction came in the form of a news release from CIRM in which Klein said,

“To disrupt and delay the agency’s critical work for a year, or even six months, because of what the commission’s staff has called ‘perception’ issues is unacceptable. Let them talk perception to patients who miss out on a therapeutic breakthrough that would have saved their lives because the agency has been paralyzed by a sweeping reorganization.”

CIRM challenged the legality of legislative enactment of the recommendations and basically threatened a lawsuit, raising the rather bizarre picture of a state agency suing the governor and the legislature. More likely, Klein would find a friendly group to act as a legal surrogate, perhaps his own private stem cell lobbying group, Americans for Cures.

The CIRM press release triggered a less than pleased response today from Jeff Sheehy, a member of the CIRM board.

In a comment posted on the California Stem Cell Report, he said,

“On whose authority are thousands of dollars of lobbying, communications, and legal resources being spent opposing this report? The legislature requested this report and to oppose in this knee jerk fashion could properly and reasonably offend those legislators who supported the engagement of the Little Hoover Commission.”

He said that most CIRM board members would likely agree with recommendations to remove the 50-person cap on CIRM staff and the 15-person limit on outside scientists on the grant review panel.

Sheehy said the board – not the agency – should take a position on the report after thoroughly analyzing it.

From outside the agency came a nod of approval for the commission's work. John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said,

“This is a thoughtful and thorough analysis from a bipartisan group with no ax to grind. CIRM’s management and board should listen to its advice.”

Klein's longstanding involvement with CIRM was touched on by the commission. It said that much was owed to Klein's hard work, beginning with overseeing the campaign for Prop. 71 in 2004. But it said that his actions and personal style “have been at the core of many of the criticisms of the stem-cell agency, and have made him a lightning rod for calls for more accountability.”

The commission continued,

“An agency governance structure that features key positions built around specific individuals does not serve the best interests of the mission of the agency or the state of California, however well-qualified the individuals may be.”

The commission stressed that succession planning should be a top priority of the CIRM board considering Klein's plans to leave his post in 18 months. The commission raised other questions about CIRM's future.

“How will CIRM know when its job is done?
“What happens when CIRM runs out of money?
“Is the mission of Prop. 71 best served by transforming CIRM into a self-sustaining operation?"

Nearly five years ago, voters approved Prop. 71 with the understanding that it was a 10-year effort. While it does lose its ability to sell bonds after that period, the agency will continue to have some sort of life, perhaps only as a vestige in state law books.

CIRM directors should give the commission's report serious consideration as they look at their own plans for the agency's future and life without Robert Klein.

(Editor's note: An earlier version of this item incorrectly stated the Little Hoover Commission's final report included a recommendation for reduction of the super-majority quorum requirement for the stem cell agency board. The change was initially recommended in the commission's draft report, but was dropped in the final report, which said the quorum requirement was “problematic.”)