Boxing in the California Stem Cell Board

Robert Klein is much admired for his prodigious efforts on behalf of stem cell research, including his service as the first chairman of the $3 billion California stem cell agency.

Klein was adept at many tasks, such as directing the ballot campaign that resulted in passage of Proposition 71 in 2004 and creation of of the agency. One of Klein's less publicly recognized skills was putting the governing board of the agency in a box from time to time.

The 29 members of that board could well be headed for another box – this time in connection with their position on the Institute of Medicine's sweeping recommendations for major changes at the stem cell agency.

Here is how that could work based on a similar situation in 2009 involving Klein and the Little Hoover Commission, the state's good government agency.

Klein did not welcome the inquiry by the commission, which was requested by state lawmakers who had butted heads with Klein. He knew that the commission would come up with recommendations that he would find odious.

So even before the Hoover report was released in its final form, Klein had the board's outside counsel, James Harrison, prepare a legal memo on a draft version of the study. Harrison's memo said many of the most far-reaching recommendations of the commission would require a vote of the people – a more costly and unlikely proposition than a vote of the legislature.

Harrison's memo was dated June 23, 2009. The commission report was released June 26, 2009. On June 30, 2009, Klein warned directors in an email that support of some of the proposals would violate their oath of office. The first time a subcommittee of directors had to a chance to react publicly came on July 16, 2009. The full board did not have the Hoover report on its agenda until Aug. 6, 2009. By that time, they were thoroughly boxed in.

Their choices were minimal, even if they disagreed with Klein. To do anything other than go along with him would mean rejection of a 10-page legal opinion from Harrison, which could be interpreted as no-confidence vote on Harrison and possibly Klein. Board members were not interested in losing Harrison, who has been valuable asset to the board since day one. Overthrowing Klein was even less likely in 2009.

Harrison is currently revisiting his 2009 memo in the wake of the Institute of Medicine recommendations, which echo some of the major Hoover proposals. The board has also scheduled a workshop for Jan. 23 that will discuss the IOM proposals.

If Harrison produces another legal memo that is as explicit as the 2009 document, CIRM directors will have few choices.  The best procedure may well be for Harrison to continue his work on the memo until after the Jan. 23 meeting. Directors could then decide on initial steps in connection with the IOM recommendations and ask Harrison how they can proceed legally, although the task is really more of a political challenge than a legal one.

Directors paid $700,000 for the IOM's evaluation and advice. It is a prestigious body with virtually no critics in the scientific community. It would be odd, to say the least, for CIRM directors to now reject major recommendations from the blue-ribbon panel only because the proposals might require a statewide vote. The response is likely to be from some: Well, stem cell directors, let's have a statewide vote, and we expect you to support the IOM changes if you plan to seek additional state funding. 

Placing another stem cell measure on the ballot -- with or without related additional funding for the agency -- would bring into play a host of issues, including possible elimination of the agency. Not to mention disturbing existing stakeholder relationships and raising uncertainty in the scientific and biotech business communities. 

Directors believe the agency has made a major contribution both to California and to science. So does the IOM. The directors need to move forward on the IOM recommendations if they are to continue their research efforts beyond 2017, when cash for new grants runs out.  And putting the board in a box is not the best way to give them the room they need to maneuver. 

Constitutional Questions Raised on Sweeping Changes at the California Stem Cell Agency

The outside counsel to the governing board of the California stem cell agency is preparing an opinion on whether some of the major changes recommended by the blue-ribbon Institute of Medicine(IOM) study might require a vote of the people.

More than three years ago, the same issue was raised  and used by the agency to resist unwanted changes.

Kevin McCormack, agency spokesman, said today that James Harrison of Remcho Johansen & Purcell of San Leandro will perform the analysis. Harrison has been counsel to the CIRM board since its inception. He also wrote part of Proposition 71, which created the stem cell agency in 2004.

Harrison's analysis was disclosed after CIRM Director Sherry Lansing, who is also chairwoman of the University of California Board of Regents, said this morning that the board's "hands are tied" concerning some of the IOM proposals because they could require a vote of the people. Other members of the board bristled at the IOM recommendations.

In 2009, Harrison tackled a similar task in connection with related, proposed structural changes at the $3 billion stem cell research effort. In reaction to proposals by the Little Hoover Commission, the state's good government agency, Harrison said,

“The Little Hoover Commission’s proposals would effect drastic and disruptive changes to CIRM’s governance and operating systems. Such changes run counter to the voters’ intent, and do not further Proposition 71’s purposes.”

The California Stem Cell Report wrote at the time, 

"The 10-page legal memo hung most of its arguments on a provision in Prop. 71 that states that it can only be amended by the legislature if the changes 'enhance the ability of the institute to further the purposes of the grant and loan programs.'
"Harrison's memo said the Hoover proposals (in question) could only be enacted through another ballot measure...."

The Little Hoover proposals dealt with the structure of the board and the conflicting responsibilities of the president and the chairman. The IOM has recommended major changes in both areas and approvingly cited the Hoover study .

Harrison's analysis will also delineate which IOM recommendations can be implemented by board action and which will require legislative approval.

The IOM report, which cost the stem cell agency $700,000, recommended a host of changes that critics for years have said are needed. But the 17-month study also went beyond what the critics had proposed. The IOM said that the 29-member governing board should be stripped of power to approve individual grants. Instead, the board would be limited to voting for or against a slate of applications.

The IOM also proposed far-reaching changes to remove conflict of interest problems, clean up a troubling dual-executive arrangement and fundamentally change the nature of the governing board. The recommendations would greatly strengthen the role of the agency's president, significantly alter the role of patient advocates on the governing board and engage the biotech industry more vigorously.

CIRM's governing board and its first chairman, Robert Klein, an attorney who directed the writing of the stem cell initiative and wrote parts of it, have mightily resisted related proposals. In 2009, Klein even warned of lawsuits if legislative action were initiated for reforms (see here and here). 

In an editorial today, The Sacramento Bee said changes are long overdue at the agency. The Bee said CIRM has "been consumed by a siege mentality that has prevented any real introspection.”  In another editorial earlier this week, the San Francisco Chronicle said that prompt and major changes are needed at the agency.

Many of the more significant recommendations clearly require either a rare, super, supermajority vote of the legislature (70 percent) and the signature of the governor or another ballot initiative, which is very unlikely. Achieving the 70 percent vote is exceedingly difficult except on the most noncontroversial matters before the legislature. The requirement permits only 13 members of the 40-member Senate to block any CIRM legislation, giving minority viewpoints extraordinary power over the content of any CIRM legislation.

(See here for a list of IOM recommendations that would likely require legislative action.)

Last Public Hearing in California for CIRM Performance Evaluation Scheduled for April

The blue-ribbon Institute of Medicine panel looking into the performance of the $3 billion California stem cell agency will hold its final public hearing within the state on April 10 at UC Irvine.

No details have yet have been posted online about the matters to be discussed or the witnesses to be heard. So far, the panel has not heard publicly from a single independent witness. The panel's final report and recommendations are scheduled to be released this fall, following its only remaining public meeting, scheduled for Washington, D.C.

The IOM has also posted a list of documents provided to the panel during a closed session last month in South San Francisco, its only public hearing in California so far. Virtually all of documents came from the CIRM itself, which is paying the IOM $700,000 for the study.

One exception was the 2009 report by California's good government agency, the Little Hoover Commission.

In its report, the commission concluded,

"CIRM’s governance structure is not adequate to protect taxpayers’ interests or serve its own ambitious goals."

The commission recommended a number of changes to strengthen CIRM's governance structure, improve accountability and reduce conflicts of interest. They included restructuring and reducing the size of the 29-member board and eliminating the controversial dual executive arrangement at CIRM.

CIRM strongly resisted nearly all of the recommendations, some of which would have required legislative or voter approval. As of last week, the IOM panel had not contacted the Little Hoover Commission for testimony.

(Click on the "closed session summary" at this location to find the information about the documents that were provided.)

The IOM also has posted a list of topics discussed by its panel in closed session last month. They included a follow-up on bias and conflicts of interest, committee composition, discussion of the previous day's hearing and discussion of data needs.

The April meeting is being held at the Beckman Center at UC Irvine, which has received $77 million from CIRM. The agency's board of directors includes two top academicians from UC Irvine: Oswald Steward, who serves on the board as a patient advocate and is director of the Reeve-Irvine Research Center for Spinal Cord Injury, and Susan Bryant, associate executive vice chancellor for research at Irvine and who serves on the CIRM board as in her capacity as an executive officer from a UC campus with a medical school.

 

Update on Last Week's Hoover and CFAOC Hearings on CIRM

Two California state entities involved with the state's $3 billion stem cell agency examined its progress last week, ranging from its biotech loan program to election of a new chair.

The bodies are the Little Hoover Commission, the state's good government agency, and the Citizens Financial Accountability Oversight Committee(CFAOC), the only state body specifically charged with the overseeing CIRM's finance.

The CFAOC, chaired by state Controller John Chiang, queried CIRM officials, who included co- Vice Chairman Art Torres, President Alan Trounson and outside counsel James Harrison. Topics included the agency's heavy reliance on outside contracts(particularly in connection with legal and communications activities), the biotech loan program and its returns to the state and conflicts of interest, particularly in connection with closer ties to industry, according to Ruth Holton-Hodson, deputy controller.

We expect to have more on the discussion when the CFAOC posts transcript from the meeting.

The Little Hoover Commission was updated on a new law that lifts the 50-person limit on CIRM staff. Originally the legislation would have implemented many of the commission's reform recommendations from 2009. However, CIRM was successful in eliminating most of those provisions from the bill, which was also a topic at the CFAOC meeting. The Hoover meeting included an update on the election of a new chair at CIRM, according to Stuart Drown, executive director of the commission. He said the commissioners asked the staff to continue to follow CIRM activities and report back on the chair election preparations.

Two State Agencies Looking Into CIRM Tomorrow and Friday

This is a busy week for the California stem cell agency, but not all the action is in Burlingame where CIRM board convenes tonight for a preliminary round, followed by the main event tomorrow.

Two other state bodies will be looking at CIRM at meetings in Los Angeles and Sacramento. One of the panels is the only entity specifically charged with oversight of the $3 billion agency's finances. That is the Citizens Financial Accountability Oversight Committee(CFAOC), which convenes in Los Angeles on Friday. The second group is the state's good government agency, the Little Hoover Commission, which recommended in 2009 a number of changes at CIRM to improve its operations and transparency.

On tap for the CFAOC is a look at implementation of the first-ever law passed dealing with the Golden State's unprecedented $3 billion research effort. The measure, SB1064, removes a 50-person cap on the agency's staff, allows for compensation of up to $15,000 a year for some patient advocates serving on the CIRM board and requires the agency to commission the first-ever performance audit of its program.

The CFAOC is chaired by the state's top fiscal officer, Controller John Chiang. An early version of SB1064 contained a provision, supported by Chiang, that would have had the CFAOC commission the performance audit. But CIRM successfully lobbied to take the audit out of the hands of the CFAOC. You can expect questions to be raised during the Friday meeting about the progress of CIRM on setting up its audit.

Also likely to come up is the subject of staffing, particularly in connection with sweeping recommendations by CIRM's external review that would seem to require substantial additional staff.

A new member of the CFAOC, Jim Kovach, former head of the Buck Institute, is expected to be sworn in. Kovach was appointed by CIRM Chairman Robert Klein, whose last appointee to the panel attended one meeting last January and then quit. Kovach is a physician, a lawyer and former professional football player with the San Francisco 49ers and the New Orleans Saints.

You can find a host of budget and other financial documents related to the meeting on the CFAOC website.

The agenda for the Little Hoover Commission says only that a "scoping memo" involving CIRM will be presented to the full commission tomorrow afternoon in Sacramento. The commission staff has not elaborated on just exactly what that means although it comes under the subject of "schedule/project selection."

As for tonight's meeting of the CIRM directors' Governance Subcommittee, you can read about that here. The full board meeting that begins tomorrow morning was subject as well of a number of earlier piecesl on the California Stem Cell Report. (See here, here, here, here and here.) For those of you following those items, the agency still has not posted any information about the cost or scope of its proposal to pay for the attendance of perhaps hundreds of persons at an international stem cell conference in Toronto in June.

Questions Raised About Klein Campaign to Pick His Own Successor

The closed-door machinations involving the election of a new chair of the California stem cell agency raise important policy questions about the conduct of the agency, its openness and whether the structure of the board and chairman is in the best public interest.

Last year, the Little Hoover Commission, the state's good government agency, documented many of those problems in its 88-page report on the $3 billion enterprise. Among other things, the commission recommended much earlier action to smooth out the election process and to create a seamless leadership transition.

Additional insight into some of the issues can be found in an exchange of emails today involving CIRM board members.

The following messages went to all members of the CIRM board as a result of an item yesterday on the California Stem Cell Report, in which we asked whether Klein's Portola Valley meeting Sunday was legal under the state's open meetings law.

The first message is from James Harrison, outside counsel to the board. The second is from Jeff Sheehy, a member of the board, who responded to Harrison's memo. Sheehy raises points that go beyond the legality of the meeting, addressing the integrity of the entire election process for chairman of the $3 billion agency. Here is Harrison's email.

"Dear Board Members,

"Bob asked me to provide you with information regarding a dinner he arranged for last Sunday evening in response to a blog post by David Jensen.

"Bob wanted to create a forum for potential nominees for Chair and Vice-Chair [Art Torres, Jeff Sheehy and Alan Bernstein] to meet and exchange views prior to the Board meeting. Because of the Bagley-Keene limitations, however, he limited the dinner to a small number of board members, including himself, Ted Love, who served as interim CSO, and Robert Birgeneau, who was a colleague of Dr. Bernstein at the University of Toronto. Melissa King and I also attended.

"The participants engaged in an open and constructive discussion, and the meeting was in compliance with Bagley-Keene.

"If you have any questions, please contact me.

"James"

Here is Sheehy's response:

"Hi James,

"From what I can gather, this was just one of several informal meetings or phone calls involving several board members through which the determination of the next chair was meant to occur.  There were further conversations with the constitutional officers who have the duty to nominate individuals for chair and vice-chair with the intent to have them agree to collectively nominate a single individual for chair.

"What process was used to screen potential candidates for chair?  Were Californians, women, and/or people of color considered?  Under what board process, committee or sub-committee was this activity undertaken?  What board members were involved and what were their roles?  Why were other board members excluded?  Why did this not take place in public under established board practices including recently adopted procedures for selecting the next chair and vice-chair?

"Why was the chair’s role and salary reconfigured for Bernstein in direct contradiction of adopted board resolutions stating that the chair is not the chief executive of the agency, the chair is a part-time position, and the salary is $150,000?   Items were placed and then removed from yesterday’s aborted Governance sub-committee meeting that would have restructured the adopted budget for the agency to accommodate the larger salary for Bernstein?  How was this decided?

"I look forward to your response.
"Thank you,
"Jeff Sheehy"

Legislation to Give CIRM More Employees Goes to Governor

Legislation to remove the 50 person cap on the size of the staff of the California stem cell agency won final legislative approval yesterday.

The measure, SB 1064 by Sen. Elaine Kontaminas Alquist, D-San Jose, is now on its way to the governor's desk where it is expected to be signed. The bill would go into effect at the beginning of the year.

The limit on the number of employees was written into law by the ballot initiative, Prop. 71, that created the $3 billion research effort. The cap was redundant since the agency has a legal limit on operational expenses. The restriction ultimately hampered the agency's ability to perform its work.

In addition to removing the staffing cap, the compromise bill would require performance audits, albeit limited, of CIRM beginning next year at the agency's expense, according to the latest state Senate analysis of the measure. It also allows the agency to pay the patient advocates who serve on its board up to $15,000 a year. The CIRM board has already acted to do so.

CIRM backed the bill after it was significantly watered down. Gone are many reforms recommended by the Little Hoover Commission, the state's good government agency, along with provisions sought by the state's top fiscal officer, Controller John Chiang.

They include elimination of a performance audit by a special, Prop. 71-created, financial oversight committee chaired by Chiang. Instead CIRM itself would pay ($400,000 plus) for the audit and control its scope. CIRM already has written into the bill a stipulation that the audit does not have to include “a review of scientific performance.”

The staff analysis of the bill that was presented yesterday when it cleared the Senate floor on a 35-0 vote said,

“The author's office states that, while stem cell research is an important and laudable goal, concerns about transparency, accountability and oversight raised by the public, the independent Citizen's Financial Accountability Oversight Committee, the Little Hoover Commission, and the state controller detract from CIRM's ability to provide grants and loans in the most efficient way.

“These concerns divert resources and attention from CIRM's ability to maximize voter's investment in stem cell sciences. In 2009 alone, CIRM spent $1.5 million in external contracts for legal services, lobbying, public relations and communications costs to improve its public image, which is a duplication of existing internal resources. Given that the debt from the bonds is serviced from the (state's) general fund, concern about CIRM's lack of transparency and accountability gains greater significance during these challenging fiscal times. By addressing many of these public concerns, this bill enhances CIRM's ability to make grants and loans, and the removal of such barriers frees up resources that were previously diverted from the grant and loan programs.”

According to the analysis, the CIRM performance audits would cover “programs, functions, operations, management systems, and policies and procedures to assess whether it is achieving economy, efficiency, and effectiveness in the employment of available resources.”

The analysis also said it would be at least 10 years before CIRM is likely to generate revenue for the state through the results of the research it finances. The analysis said,

“Due to the time it takes research to be done and a product to be commercialized, the general fund is unlikely to see significant revenue until about 2020. The amount of revenues is unknown and depends on the number and types of drugs and technologies that are commercialized as well as their commercial success.”

Watered-Down Reform Bill Moving Ahead; CIRM Looking at Boosting Staff to as High as 60

The California stem cell agency almost certainly will be able to hire a small platoon of additional employees next year as state lawmakers appear ready to remove a voter-imposed staffing cap.

That, however, may sound more troubling than the reality. The agency still has a 6 percent limit on operational spending, which makes the cap of 50 employees both redundant and a bit foolish. CIRM has labored for some time with what amounts to a staff the size of a 24/7 Burger King, and CIRM President Alan Trounson has warned that the quality of work could suffer.

The agency, with only 45 employees, is trying to oversee more than $1 billion in awards to more than 300 researchers and institutions. At the same time, it is attempting to award another $2 billion in increasingly complex grant rounds that reach into clinical trials and involvement with corporate biotech.

Earlier this year, CIRM said it might hire as many as 15 additional employees. Beyond that, it would run into space problems in its existing offices. Hiring additional employees would also “shorten the life span” of the cash available under the 6 per cent limit, which refers to the $3 billion in bond funding.

The bill removing the cap is headed for placement on what is known as the consent calendar. Items in that category are supposed to be noncontroversial (but there are exceptions) and are voted on as a block with no discussion.

The legislation, SB 1064 by Sen. Elaine Kontominas Alquist, D-San Jose, is currently in the Assembly Appropriations Committee after winning approval in the Health Committee, 19-0, on June 30. After passage by the full Assembly, it will return to the Senate for concurrence in Assembly amendments before it goes to the governor. It would take effect at the beginning of 2011.

Given CIRM's support, the first time ever for such legislation, the bill seems certain to be approved. However, approval requires a rare, super, super-majority vote – 70 percent – of both houses, so it only takes a few legislatiors to bring the bill to a halt.

The stem cell agency backed the bill in a compromise that significantly watered down the legislation. Gone are many reforms recommended by the Little Hoover Commission, the state's good government agency, along with provisions sought by the state's top fiscal officer, Controller John Chiang.

They include elimination of a performance audit by a special Prop. 71-created, financial oversight committee chaired by Chiang. Instead CIRM itself would pay ($400,000 plus) for the audit and control its scope. CIRM already has written into the bill a stipulation that the audit does not have to include “a review of scientific performance.”

Excluding a scientific review gives cover for the agency if it wants to isolate problems it does not want examined. Exclusion also avoids outside review of many of CIRM's key assumptions. However, a detailed scientific review may well be beyond the capability of most auditing enterprises, although they could presumably hire a panel of experts.

But perhaps more important is the fact that the agency would pay the audit firm for the work. If CIRM pays the piper, it calls the tune. Just ask Enron, World.com and others. Any audit paid for by CIRM can be fairly criticized for not being objective. It will mean $400,000 or more for the successful bidder. CIRM has already demonstrated it wants its contractors to be cheerleaders. That was a key criteria for selection of the firm that is now evaluating the economic impact of the agency.

Also gone are revisions in the role and election of the chairman, along with other reforms. The previous provisions would have eliminated the conflicting roles of the chairman, who now has executive management responsibilities, and the president. Problems with the dual executive arrangement at CIRM have arisen in the past and are likely to come up again. Also eliminated are provisions that would have given the board more control over selection of its own chairman.

Compromise on Legislation Removing CIRM Staff Cap

Legislation to remove the 50-person cap on staff at the California stem cell agency and ensure affordable access to taxpayer-funded therapies was modified Thursday with the intent of winning the support of the CIRM board of directors.

CIRM Co-Vice Chairman Art Torres and others negotiated the changes in SB1064 by state Sen. Elaine Kontominas Alquist, D-San Jose. Torres is expected to seek the endorsement of the full CIRM board at a special telephonic meeting Tuesday. The measure is expected to come before the Senate Appropriations Committee on Thursday.

CIRM dearly wants the 50-person cap removed. CIRM President Alan Trounson has warned that the quality of CIRM work could suffer if it doesn't have more help. The agency has awarded more than $1 billion in grants and loans to more than 300 researchers. Another $2 billion will be handed out over the next several years. The cap is a bit of redundancy in Prop. 71 since the measure also includes a limit on CIRM's operational budget.

Eliminating the provision, however, is not a trivial legislative matter, also because of Prop. 71. The ballot initiative wrote into law a stipulation that the legislature can only make changes in CIRM with a rare, super, super-majority vote (70 percent) of both houses. As a result, both Alquist and CIRM have compromised on the legislation.

As the legislation now stands, in addition to removing the staff cap, the bill would:

• Write into law provisions aimed at ensuring affordable access to CIRM-financed therapies. Some flexibility for exceptions would be permitted for CIRM under controlled and public processes.
• Assure that potential profits from the taxpayer-funded therapies would go to the state's general fund. Prop. 71 was vague on where such cash would go, raising the possibility it would go to CIRM directly. Any such revenue is far, far down the road given the slow nature of research and federal approval of new therapies.
• Require performance audits of CIRM every three years, beginning in 2010-11, at CIRM's expense
• Permit the expansion of the grant review committee beyond 23 members and 15 scientists
• Require leadership succession planning at the agency. Its first and only chairman, Robert Klein, has said he will be leaving his post in December. Klein has been the dominant and driving force at the agency, even leading the electoral campaign that won approval of Prop. 71 in 2004.
• Require creation of a financial transition plan to address issues that CIRM faces when its current bond funding expires several years from now.

Earlier provisions were removed from the measure that would have changed the selection of chairman and vice chairman of the agency and altered the roles of the chairman and president. The role of the chairman is likely to redefined by the board as it deals with Klein's departure.

Much of the original measure had its origins in the findings of the Little Hoover Commission study of the stem cell agency. The commission recommended a wide range of changes at CIRM, some of which remain in the Alquist bill.

Alquist's bill declared,

“Since its inception, questions and concerns have been raised about the institute's practices, its governing board, and how the state directly and financially benefits through this sizeable investment. These criticisms divert the attention and focus of the institute to drive transformational scientific research and find cures.

“It is the intent of the Legislature to further enhance the ability of the institute to manage this investment made with public funds by addressing public concerns regarding oversight and transparency.”

The bill also said that it was intended to maximize state revenues that might result through CIRM grants.

The public may attend the CIRM board meeting on Tuesday at a number of locations throughout the state. Individuals may also comment on the bill and any action by the board. Specific addresses can be found on the agenda.

Negotiations Underway on CIRM Reform Legislation; Staff Cap Removal Included

Legislation to remove the 50-person cap on staff at the $3 billion California stem cell agency comes before the organization's directors next Tuesday morning as negotiations on the bill appear to be reaching a critical stage.

The proposal must clear the state Senate by May 27, or CIRM will have to wait a year to make another attempt. That would pose difficulties for the agency, which is trying to administer more than $1 billion in grants to more than 300 recipients. CIRM President Alan Trounson warned earlier this year that the quality of CIRM work will suffer without the ability to hire more staff.

Removal of the cap is part of a bill, SB1064 by Sen. Elaine Kontaminas Alquist, D-San Jose, chair of the Senate Health Committee. While CIRM would like to see the cap removed, other provisions in the current measure are not viewed with pleasure by the agency. They include an effort to guarantee affordability of taxpayer-financed stem cell therapies and proposals to improve transparency and management at the five-year-old organization, which is unprecedented in state history.

In the case of the staff cap, CIRM is hoist on a petard of its own making. The cap was written into law by CIRM Chairman Robert Klein and others in an effort to defuse potential arguments against Prop. 71 that it would create a huge new state bureaucracy. Also written into law by Prop. 71 was a unusual requirement that makes it nearly impossible to change such things as the staff cap. Such alterations require a rare, super, super-majority vote of 70 percent of both houses and the signature of the governor. That means that CIRM will have to do some horse-trading to get what it wants.

CIRM Vice Chairman Art Torres, a former state legislator and head of the state Democratic Party, is leading the closed-door negotiations on a possible compromise on the bill. On Tuesday, he hopes to be able to recommend that the CIRM board support a revised bill. In response to a query on Monday, he told the California Stem Cell Report via email that no final agreement had been reached on the legislation. Torres said that the negotiators were awaiting specific language. He said it is possible that no agreement will have been reached by next Tuesday. Another source said, “We're hopeful to have something soon.”

The legislation is now before the Senate Appropriations Committee. If the bill clears that committee, it will go to the Senate floor.

The staff of the committee this week released its analysis of the bill. Among other things, the analysis by committee consultant Katie Johnson said the bill would create additional costs ranging from $400,000 to possibly millions. The $400,000 would be for each of new performance audits of CIRM and its board of directors. The audits would be required every six years, beginning this year. The millions would come into play for additional staff salaries, although that would not affect the state's general fund. The cost would be borne by CIRM, which is financed directly by state bonds(money borrowed by the state).

Johnson wrote,

“Although CIRM is currently under the (staff) cap with 43 employees, it is reasonable that as they make more grants and further develop the loan program, more staff would be needed. CIRM's administrative expenses, including salaries, are capped at 6 percent of bond funds: 3 percent for research and research facilities, including the development, administration, and oversight of the grant making process and the operations of the working groups and an additional 3 percent for the costs of CIRM general administration. CIRM is within their administrative cap, and while paying salaries for new employees would put expenses closer to the cap, it is unlikely to exceed it.”

Members of the public who would like to tell the CIRM board what they think of the legislation will have that opportunity at a host of locations around the state. The specific sites, which range from Healdsburg to Irvine, can be found on the agenda. If you plan to attend, it would be advisable to tell CIRM in advance so there are no glitches in gaining entrance. All of the locations are open to the public by law, but some are in businesses or other locations that may not be accustomed to admitting the general public. The list of locations currently on the agenda is short and more are likely to be added in the next few days, including sites in Sacramento and San Diego.

CIRM Reform Legislation Advances in Senate

Despite industry opposition, legislation aimed at improving transparency and accountability at the $3 billion California stem cell agency easily cleared its first legislative hurdle this month.

The bill, also aimed at ensuring affordability of taxpayer-financed stem cell therapies, was sent to the state Senate Appropriations Committee on a 6-0 vote in the Senate Health Committee, which is chaired by the bill's author, Sen. Elaine Kontominas Alquist, D-San Jose.

The California Healthcare Institute opposed the bill, SB1064. The biomedical industry group said the measure's requirements for affordability would create a “disincentive” to commercialization of therapies and give CIRM less flexibility.

The board of the stem cell agency is expected next week to formally ask that the bill be sent to interim study, which would effectively kill the measure for the next year or so. However, the legislation contains a rather large carrot for the stem cell agency, which is struggling with a legal cap that limits it to only 50 employees to monitor the $1 billion in grants CIRM now has out – not to mention another $2 billion that it intends to give away. The legislation would remove the staff limit, which CIRM President Alan Trounson has said is endangering the quality of CIRM work. A spending limit on administrative expenses would remain in place.

CIRM Chairman Robert Klein and a handful of his associates in 2004 wrote the staff cap into the 10,000-word ballot measure, Prop. 71, that created the agency. It was an obvious ploy to defuse potential opposition arguments that CIRM would become another large government bureaucracy. Klein led the political campaign on behalf of Prop. 71.

Earlier this year, Alquist said that she was introducing the legislation because CIRM is essentially accountable to no one. Her action followed a call by a sister organization to CIRM that urged greater accountability and transparency on the part of the agency, whose 29-member board is packed with representatives of institutions that have received the bulk of the $1 billion given by CIRM.

The sister organization is the Citizens Financial Accountability Oversight Committee and is chaired by state Controller John Chiang, the state's top fiscal officer. Chiang endorsed Alquist's legislation as did the Little Hoover Commission, a state good government agency that studied the stem cell agency. Much of the Alquist legislation is based on the findings of the Hoover Commission.

Among other things, Alquist's bill would eliminate overlapping responsibilities between the CIRM chairman and president, which have been the source of turmoil in the past. It would change the selection process for the chairman and require performance audits of CIRM and its directors. Currently, CIRM operates with unprecedented autonomy in state government. Its finances and budget cannot be touched by the governor or the legislature. Cash flows from state bonds directly to CIRM in an unfettered stream, regardless of the state's financial crisis and severe cut backs elsewhere.

According to the Health Committee staff analysis by Lisa Chan-Sawin, Alquist states that

“while stem cell research is an important and laudable goal, concerns about transparency, accountability and oversight raised by the public, the independent Citizen's Financial Accountability Oversight Committee, the Little Hoover Commission, and the State Controller detract from CIRM's ability to provide grants and loans in the most efficient way. These concerns divert resources and attention from CIRM's ability to maximize voter's investment in stem cell sciences.”

California Lawmakers to Weigh Stem Cell Agency Reform

Just a few weeks after a key state panel recommended more accountability and transparency at the $3 billion California stem cell agency, a leading California lawmaker has proposed far-reaching changes in  the five-year-old organization.

The measure – SB1064 by Sen. Elaine Alquist, D-San Jose – would require performance audits and thorough financial and leadership transition planning at CIRM. It would alter the selection of CIRM's top leadership, ban pre-judging grant proposals and funnel any royalty revenue away from CIRM.

The proposal may well avoid the dismal fate of past legislative efforts involving CIRM. Gov. Arnold Schwarzenegger vetoed those bills after stiff opposition from the agency. However, the measure by Alquist(left), chair of the Senate Health Committee, contains a large carrot for CIRM: removal of the 50-person cap on the size of the organization. The cap was written into Prop. 71 in an effort to make it more appealing to voters. But now CIRM says the restriction could endanger the quality of work at the agency and wants it changed.

CIRM had no immediate reaction to the legislation. It said a formal response was being prepared and would be available later today or tomorrow. Alquist's office also had no immediate statement available.

Asked for comment, John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said,

“Sen. Alquist's bill makes sensible adjustments to the California Stem Cell Research and Cures Act including requiring transition plans for leadership changes and the end of the current bond financing. The ICOC (the CIRM board) would be wise to embrace it. I hope I'm wrong, but I predict the wagons will be circled and this will once again be portrayed as threat to CIRM's very existence.”

The measure embodies many of the recommendations of the Little Hoover Commission, the state's good government agency. The Citizens Financial Accountability and Oversight Committee (CFAOC), a sister to CIRM, last month recommended adoption of some of the Hoover suggestions, declaring that the agency needed to be more open to the public. (Both CIRM and the CFAOC were created by Prop. 71 in 2004). The CFAOC action also appeared to have triggered two newspaper editorials and a column in the Los Angeles Times deploring CIRM's lack of transparency and accountability.

Among other things, the legislation would:

• Require grant recipients and their licensees to submit to CIRM a plan to assure affordable access to therapies developed using CIRM funding.
• Require that all revenues resulting from CIRM's intellectual policy agreements go into the state's general coffers instead of possibly into CIRM's treasury.
• Require development of a financial transition plan to be submitted to the governor and legislature. (CIRM has already committed one-third of its $3 billion in bond funding with another $300 million or so expected to be committed by the end of this year.)
• Require the state controller, the state's top fiscal officer, to commission annual, independent performance audits of CIRM at the agency's expense.
• Change the duties of the chair and president of CIRM, specifying that the chair does not engage in day-to-day management. The CIRM board would be given authority to decide the chair's responsibilities.
• Remove nomination of candidates for chair from statewide constitutional officers, such as the governor.
• Require CIRM to formulate a succession plan to deal with changes in its leadership. (The current chairman, Robert Klein, says he plans to leave his post in December.)
• Reduce the terms of the CIRM chair and vice chair from six to four years.
• Require all grant applications to go through CIRM's grant review group, which would end a pre-application triage that CIRM has been using.
• Require that meeting minutes include voting records of each member of the CIRM board.

The Alquist bill is likely to be changed as it wends its way through the legislature. It requires a 70 percent vote of both houses, a rare and difficult requirement for any piece of legislation.

We will carry CIRM's response and statements from Alquist when we receive them.

Southern California Newspaper Calls for Greater Transparency at CIRM

Another negative newspaper editorial popped up this week concerning the California stem cell agency. The piece called for more accountability and openness on the part of $3 billion research effort. And, the editorial said, if the agency goes to court to fight reforms, lawmakers should place the proposals on a statewide ballot.

The article in the Riverside Press Enterprise cited recommendations from the Little Hoover Commission, the state's good government agency, and the Citizens Financial Accountability and Oversight Committee, a sister agency to CIRM. Most recently, the citizens committee last week called for some reforms, a move that triggered a less than favorable column – for CIRM – in the Los Angeles Times, the state's largest paper, and a harsh editorial in the San Diego Union-Tribune.

The Riverside editorial said,

“California's stem cell research agency is not a private fiefdom, but a public entity answerable to taxpayers. Legislators should follow the recommendations of a state watchdog, and impose rules that would bring accountability and openness to an agency spending $3 billion of public money.

“Those steps should start with restructuring the agency's governing board to provide more independence, reduce conflicts of interest and hold members responsible for their actions. And the Legislature should oblige the agency to make decisions more transparently when awarding research grants.”

The piece continued,

“...(N)ot surprisingly, the institute has been dogged by widespread suspicion of conflicts of interest. The agency says that board members abstain from voting on matters that affect them. But the need for frequent recusals suggests an inherent structural flaw in the board,

“How the agency disburses money is largely hidden from public view, as well. The institute only identifies those grant applicants who collect money. But publicizing all the applicants, not just the successful ones, would protect against self-interest or favoritism in funding decisions. Connecticut's stem cell program follows that practice, and so should California's.

“The stem cell institute claims that most of those reforms would require a new ballot measure, but that argument is suspect. The measure allows the Legislature to make changes that further the intent of Prop. 71. Steps that provide greater public trust and protect against insider dealing surely further the agency's mission -- not to mention the public interest.

“And if the agency goes to court to fight such reforms, the Legislature should simply put them on the ballot.”

Scathing Commentary on CIRM from San Diego Union-Tribune

The San Diego Union-Tribune today blistered the California stem cell agency in an editorial calling for greater transparency and a "much less blithe attitude about conflicts of interest."

The editorial carried the headline: "Stem-cell shenanigans / Lawmakers should force state institute to shape up." The San Diego paper said,

"This reeks. It increasingly appears as if the Legislature needs to save CIRM from itself. The institute’s good work does not excuse its machinations."

The Union-Tribune, whose circulation area includes one of the nation's hotbeds of biotech, said that it supported Prop. 71, the measure that created the stem cell agency in 2004, and has backed the agency since then .

The newspaper continued,

"Nevertheless, a June 2009 report by the Little Hoover Commission, a state watchdog group, made a strong and convincing case that CIRM had fundamental conflict-of-interest problems. Those overseeing CIRM often also won grants from the agency.

"Dismayingly, CIRM dismissed the criticism out of hand, which only raised more eyebrows. This is not how a public agency is supposed to act when legitimate ethical concerns are raised by a respected public watchdog.

"Now, however, the Legislature has the opportunity to compel CIRM to take these concerns seriously. Institute officials say they are hamstrung by a provision in Proposition 71 that puts a 50-employee limit on CIRM and are asking for a change in state law.

"Lawmakers must do so only if the legislation also includes specific provisions requiring much more transparency in how management and grant decisions are made and a much less blithe attitude about conflicts of interest."

CIRM Oversight Panel Recommends More Accountability, Transparency at Agency

The California state panel charged with overseeing financial practices at the state's $3 billion stem cell research agency today urged it to improve its accountability and make its performance more open to the public.

State Controller John Chiang, the state's top fiscal officer and chairman of the panel, said,

“Californians overwhelmingly voted in 2004 to provide billions of public dollars to find cures for chronic, debilitating and deadly diseases that affect millions of Americans each year. To ensure that taxpayer dollars are spent lawfully, wisely and successfully, the stem cell program must pursue the highest standards of transparency to be fully accountable to the public.”

CIRM had no immediate comment on today's action.

In a news release, the controller's office said the Citizens Financial Accountability Oversight Committee voted unanimously to endorse recommendations last year by the Little Hoover Commission, the state's good government agency, to make CIRM's practices more open to the public.

Specifically, the committee cited recommendations “to improve efficiency and transparency in the way grants and loans are distributed, make future business practices more open, and use the authority of the CIRM governing board and the CFAOC to enhance oversight of the stem cell program.”

Asked for elaboration, Hallye Jordan, deputy controller, said in an email that the committee

“...formally advised CIRM to implement those proposed recommendations that need no legislative authority and support legislation where statutory changes are required. Here are the three:

“The Legislature and CIRM should improve efficiency and transparency for distributing grant and loan funds,

“The CFAOC and the CIRM governing board should use their authority to enhance oversight, and

“The CIRM governing board should begin planning for CIRM's future through an open process.”

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., said,

“The Little Hoover Commission’s recommendations were made after thoughtful study. Now another oversight panel has endorsed that work. CIRM would do well to listen.”

The financial accountability committee, created by Prop. 71, also voted to post its members' statements of economic interest and travel expenses on both the controller's and CIRM's Web site. The committee urged CIRM to post the same information for its directors and staff.

Both the controller and the governor post that information on their Web sites. (Here is the controller's office info and here is the governor's.)

The vote on the Little Hoover recommendations was unanimous, with Chiang, Daniel Hollander, Loren Lipson, Gurbinder Sadana and Jim Lott in favor. Daniel Brunner was absent.

The vote on posting statements of economic interests was 4-1 with Hollander, a recent appointee to the panel by CIRM Chairman Robert Klein, dissenting.

We have asked CIRM for comment on the actions. We will carry it when we receive it.

CIRM Finances On Table Next Tuesday

The financial affairs of the $3 billion California stem cell agency will come under scrutiny next Tuesday at a meeting in Los Angeles headed by California's chief fiscal officer.

The occasion is a session of the Citizens Financial Accountability Oversight Committee, which was created by Prop. 71. By law, the six-member board is chaired by the state controller, John Chiang.

On the agenda next week are the recommendations of the Little Hoover Commission for a restructuring of the CIRM board and other actions to improve the agency's performance. Also up for discussion is CIRM's financial performance, an update on grant awards and the grant process along with discussion of “risk analysis” involving CIRM, which has embarked on an unprecedented $500 million loan program for biotech businesses. The agency projects a $100 million “profit” on the loans despite projected default rates as high as 50 percent.

Chiang Delays CIRM Oversight Meeting

State Controller John Chiang has postponed Wednesday's meeting involving the California stem cell agency until sometime in late January.

The session of the Citizens Financial Accountability Oversight Committee was slated to discuss the recommendations by the Little Hoover Commission for changes at CIRM, among other things.

The committee was created by Prop. 71, the same measure that created the stem cell agency. The controller, the state's top fiscal officer, is chairman of the committee by state law.

A new date for the meeting is expected to be posted sooon. However, we are not likely to be carrying a notice on it since we will setting to sea in a few days and will not have access to the Internet until sometime late in January. You can find the meeting schedule for the panel and other information here.

The Lucky 11 and $167 Million in Stem Cell Research Cash

The California stem cell agency has pinpointed 11 likely winners of grants and loans up to $20 million each in the agency's ambitious disease team round, which was once projected at $210 million.

The awards are scheduled to be formally approved next week by the CIRM board of directors at a two-day meeting in Los Angeles at the Luxe Hotel. CIRM's Grants Working Group decided earlier that 11 proposals merited funding. The CIRM board almost never rejects a recommendation for funding by its reviewers.

The cost of the 11 applications is $167 million, well below the $210 million budgeted for the disease team round. Twenty other proposals were rejected by reviewers who gave them scientific scores of less than 70 on a scale of one to 100. Some patient advocates for the rejected research, which includes projects involving Huntington's Disease and spinal cord injury, are likely to make a pitch at the CIRM board meeting for funding of some of the rejected applications.

The CIRM board has final authority to make the grants, although it is loath to overrule its scientific reviewers.

Names of the recipients are not scheduled to be released until after board action, which could come on Tuesday or Wednesday. However, the public summaries of the reviews generally contain enough information to determine the identity of the winners, if you are well-informed about stem cell research or willing to scratch around on the Internet.

For example, the review summary of the top-ranked application – with a score of 90 for $14.6 million for stem cell therapy for AIDS – said,

“Reviewers noted that the investigators have already successfully navigated many of the regulatory hurdles with the FDA and RAC through previous clinical trials in hematopoietic transplantation in HIV patients.”

Regarding another application that sought $20 million for cell therapy for diabetes, the review summary said,

“The principal investigator (PI) has experience in encapsulation and has led the efforts that resulted in recent publications in top tier journals. The world-renowned immunology collaborator is well published, has experience in translational immunology and clinical trial design, and will lead a group of established immunologists at the collaborating institution.”

The summaries also contain the names of reviewers who were excused from examining the application because of conflicts of interest, both professional and financial, additional information that can help identify winners.

The names of the applicants are not raised during the CIRM board discussion, which is public. The idea is the board members should be blind to the institutions seeking the funds. But some of the board members are well-versed enough in stem cell science to be able to identify applicants without an Internet search.

The earlier de facto decisions, however, are made behind closed doors by scientific reviewers and some CIRM board members. The statements of the economic interests and potential professional conflicts of scientific reviewers are filed with CIRM but are not made public, a practice that has triggered public complaints by a few researchers. Others grumble in private, wary of making their views publicly known because CIRM controls $3 billion in grant money that might not come their way if they are too cranky.

On tap for next week's meeting is discussion of a CIRM survey of its scientific reviewers regarding public disclosure of their financial interests. The results are expected to be negative, and the CIRM board is not likely to go against the wishes of its reviewers. Some CIRM directors fear the loss of reviewers if they are forced to make public their financial interests.

The Little Hoover Commission, the state's good government agency, recommended the survey because of the power of the reviewers over the public purse.

Some of the applications at next week's meeting are expected to involve loans to businesses, the opening foray into what is projected to be a $500 million program. CIRM directors are expected to go along with today's decisions on loan practices by their Finance Subcommittee.

In response to a query, Don Gibbons, CIRM's chief communications officer, said that the subcommittee approved both staff recommendations concerning evaluation of recourse loans and changes in the loan administration policy.

He said the panel also approved the “hybrid recommendation” in its financial review of loan applications. A CIRM document said,

“Under this proposal, CIRM staff would review and evaluate the information provided by CIRM’s delegated underwriter or financial consultant and the Grants Working Group, determine whether an applicant is eligible for a recourse loan or a non-recourse loan, and negotiate any conditions.”

Under certain conditions, however, the staff's determination could be reviewed by the Finance Subcommittee.

Prop. 71 Fallout: Bond Guru Assails California Voter Initiatives

Bond maven Bill Gross kicked off October by lashing out at California's “perverted” form of government including ballot measures such as Prop. 71, which he said have have “almost tragically shaped” the state's laws.

Gross made his remarks in his monthly commentary, which is widely followed in the financial community. The Southern California resident is the head of the $178 billion Pimco Total Return Fund. He is also a backer of stem cell research at UC Irvine to the tune of $10 million.

For those of you not familiar with ballot measures, Prop. 71 is the voter initiative that created California's $3 billion stem cell agency, which uses borrowed money to finance scientific research for the first time in the nation's history.

Gross deplored the current financial state of affairs in California, which he likened to dog excrement. He wrote:

“Perhaps more than any other state, California has been affected by its perverted form of government, requiring a two-thirds vote by state legislators to effectively pass a budget. In addition, the state’s laws are almost tragically shaped by a form of direct democracy more resemblant of the Jacksonian era, where the White House furniture was constantly at risk due to unruly citizens, high on whisky, and low on morals and common sense. Propositions from conservatives and liberals alike have locked up much of the budget, with Proposition 13 in 1978 reducing property taxes by 57% and Prop. 98 in 1988 requiring 40% of the general fund to be spent on schools.”

Gross continued,

“What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification.”

Prop. 71 is just one of the ballot measures that California voters have approved over the years, although its impact ($6-$7 billion with interest) is tiny compared to the examples that Gross cited.

Nonetheless, government by ballot measure is a poor way to regularly do the people's business. Indeed, one of the chief obstacles to the smooth functioning of the stem cell agency is, in fact, the ballot measure that created it. Like some smothering parent, Prop. 71 effectively prevents the agency from making much-needed changes in its operations, ranging from removing the poorly conceived 50-person staff limit to changing its super-majority quorum requirements, which continue to make it difficult for its board of directors to do business. The board's own attorney earlier this year declared that CIRM is handcuffed. He said that it is impossible for the board or the legislature to make important reforms (see the the Little Hoover Commission findings) without going to another vote of the people, an exceedingly unlikely event, short of a major scandal at the stem cell agency.

(Editor's note: An earlier version of this item did not contain the reference to Gross' $10 million contribution.)

Correction

The “Prop. 71 Minutia” item on Sept. 16 contained a quote that referred to “advice” from the Little Hoover Commission that CIRM should lower its quorum requirements. A draft of the Hoover report contained that recommendation, but it was omitted in the final version. The final report said the super-quorum requirement was “restrictive” and “problematic” but said the problem would be eased by reducing the size of the board from 29 to 15.