California State Treasurer Eyes Private Bond Sale -- First in State History

The California state treasurer's office confirmed today that it is considering selling state general obligation bonds privately for the first time in state history.

The state is exploring the private sale because its $40 billion budget crisis has forced the cancellation of the normal sale of state bonds. About $3.8 billion has already been frozen in funding for infrastructure projects, resulting in delays or halts to 5,300 infrastructure projects statewide. Today the state controller began delaying payments to "more than a million aged, blind and disabled Californians that go to pay their rent, utilities, or put food on their tables (and) to state agencies that use the payments to fund critical public services, ranging from public safety to health and welfare."

In response to an inquiry from the California Stem Cell Report, Tom Dresslar, a spokesman for the state Treasurer Bill Lockyer (see photo), said,

"We are exploring the possibility of privately placing GO (general obligation) bonds. The purpose would be to get some dollars flowing into infrastructure projects."

He continued,

"It's premature to talk about when any such private placements might occur. All I can say is we're moving with a combination of swiftness and due diligence. It would not be in the State's interest or CIRM's interests to speculate about price.(CIRM is the $3 billion state stem cell agency.)

"As far as we know, the State never has sold GO bonds through a private placement. Our office has informed CIRM we will have no problem with CIRM conducting a private placement, as long as it doesn't compete with any State efforts to issue taxable bonds for other purposes."

On Jan. 16, Lockyer said,

"The bond market is showing signs it may allow California access, despite the State’s worsening cash crisis and its $41 billion budget shortfall. My office is actively exploring options for issuing bonds soon. We’re also exploring other possible arrangements that could help pump more money into projects. But there are no guarantees these efforts will succeed."

CIRM officials began talking publicly about selling state bonds privately early in December because of a shortage of cash at the $3 billion research enterprise, which depends on bonds for its funding.

Last week, CIRM Chairman Robert Klein mentioned that the state was also considering selling the bonds privately.

A Look Inside the Financial Woes at the California Stem Cell Agency

California's $40 billion budget crisis landed hard last week on its five-year-old stem cell agency, which is now engaged in the initial stages of an unusual effort to sell state bonds privately.

If CIRM is successful, it is believed that it may be the first time that the state has placed bonds privately and perhaps the first time for any state in the nation.

The scope of CIRM's fiscal difficulties were laid out last week during a board of directors meeting that heard words like dire, daunting and pain. CIRM director Carmen Puliafito, dean of the USC School of Medicine, said,

"We have a financial crisis looming."

He was not alone among the directors with that perspective. But at the same time, CIRM Chairman Robert Klein and others (presumably including Puliafito ) worried about the message being delivered concerning what is now the world's largest source of funding for human embryonic stem cell research. Klein and others stressed that while "challenges" exist, the private bond sale plan provides hope.

Bonds are the key to CIRM's financial survival. They are virtually its only source of funding, although it does have some cash that has been donated. The agency does not tap the usual sources of state revenue, such taxes and fees.

Currently California is not selling bonds because of its budget crunch and turmoil in the bond markets. If and when the state does begin sales, other state needs will take priority, leaving CIRM with the necessity to find cash to continue operations perhaps for as long as the next two years, according to a briefing at the CIRM board meeting Thursday evening.

Klein repeatedly stated, however, that current grants will be funded and that the state has a legal, contractual obligation to do so.

John Robson, CIRM's vice president for operations, walked through through the numbers for board members. Here is a summary of what his Power Point presentation contained. The entire presentation can be found at the end of this item.

CIRM had $158 million on hand as of Jan. 1. It has awarded $637 million as of last Thursday. It projects expenses of $139 million by July 1, when it will have $39 million on hand.

If no additional bonds are sold, by the end of 2010, CIRM will be $134 million short of being able to fund on-going commitments. If it tries to fund both on-going commitments and projects whose concepts have been approved by the board, it will need $320 million by the end of 2010. The shortfall would be $377 million if new projected new programs are added.

Robson presented several recommendations "to achieve scientific mission critical goals during (the) cash-flow shortfall." They included switching from annual to quarterly payments for grants, which could save $21 million to $109 million depending on which of the three scenarios are chosen. Another recommendation was possibly delaying requests for grant applications. Robson, however, identified as "mission critical" both the Bridges to Stem Cell Research grant round and early translational and disease team grants.

The $18 million Bridges program was approved on Friday but actual funding was delayed until the agency has a better understanding of the outlook for the plan to sell bonds privately.

Other recommendations/administrative actions included no additional "upfront funding" for its much-touted lab construction effort, which would save $55 million to $60 million. Another option was to reduce budgets for all grants by a fixed percentage.

The board itself took no action on the recommendations other than declaring that it would decide later on the actual funding of the two training grant programs approved on Friday. It indicated generally that the staff should make a change to quarterly funding. CIRM is also going ahead with requests for applications this month for its $210 million disease team round, which Klein said was critical. The board expects to hear updates on CIRM's financial condition at its meetings in March and April.

On Friday, we asked CIRM if it had additional comments on its financial situation for this piece and said the remarks would be published verbatim. We will carry the agency's remarks if and when we receive them. In the past, we have personally told both Klein and CIRM President Alan Trounson we are more than glad to carry comments from them verbatim on any CIRM-related subject of their choosing.

Klein on Friday indicated that at some point, the agency would make a general statement on its website about its fiscal difficulties.

CIRM has not yet posted a link to the Power Point presentations that Robson made to directors Thursday on its financial situation. However, CIRM communications chief Don Gibbons kindly sent a copy of the presentations to the California Stem Cell Report. Since CIRM perhaps has other, more important business than posting presentations, we have published them below. Robson's presentation begins on slide 4.

AP's Story on CIRM's Grants and Cash

The Associated Press has written a brief story dealing with the CIRM grants approved on Friday and touching on the cash woes at the stem cell research agency.

Here is the lead:

"The governing board of the California stem cell agency is delaying $58 million in research grants at least until March because of the poor economy and credit market."

The four paragraph story appeared on both the The Sacramento Bee and San Jose Mercury News websites.

On the Bee site, The AP article triggered four reader comments. All were hostile to the stem cell agency. No readers commented on the San Jose site, at the time of this writing. Here is a link to the article at the Bee.

Modest Coverage of CIRM Cash Problems

News coverage of the money woes of the California stem cell agency was skimpy today with only one mainstream media outlet discussing them at any length.

Our Internet searches turned up only three stories. They were in the San Diego Union-Tribune, the San Francisco Chronicle and the San Francisco Business Times.

Reporter Terri Somers of the San Diego paper produced the only story looking more deeply at the financial issues. The other two focused on approval of $58 million in training grants.

Somers wrote:

"The problem: Should the state stem cell institute keep approving research grants, even though it will run out of money about the end of September because of the state budget impasse?

"The answer: a resounding yes."

She wrote that CIRM is hoping to raise $138 million through the private placement of state bonds just to fund the programs through the end of 2010. Somers also quoted researcher Jeanne Loring of the Scripps Institute about the significance of CIRM's financial uncertainty.

"'You don't want to be hiring people for a couple months and then laying them off, especially since these are highly trained people we've already invested millions of dollars in,' said Loring, who has been promised about $7 million in three state grants.

"'I think the trouble is short-term, but I have to worry about the short and long term,' she said."

A shorter story by David Perlman of the Chronicle began,

"The governing board of the California stem cell agency tentatively approved $58 million in new grants Friday, but with the nation in recession and the bond market stagnant, board members decided to hold up the money and reassess the situation in March."

Ron Luety of the Business Times wrote,

"CIRM is considering a plan to sell bonds on the private market. Those sales are targeted at philanthropists who helped the state agency when lawsuits by taxpayer advocates and opponents to embryonic stem cell research delayed its startup.

"No timeline was set as to when the grants will be funded, but the CIRM board will study funding against at its March 12 meeting."

Overall, the coverage should be satisfying to CIRM, some of whose directors were deeply concerned about the negative message that its financial troubles would deliver to the public and the stem cell community.

State Colleges Win CIRM Grants

The California stem cell agency this afternoon said that the 26 training grants "tentatively" approved today totaled $58 million and included 11 aimed at undergraduates and masters level students and 15 targeting young scientists.

It was the first time that California state colleges managed to snag some of CIRM's $3 billion. One two-year community college also won approval. However, all will have to wait for later action actually freeing funds for their programs. The delay in funding prompted CIRM to call the board action "tentative" in its press release. Decisions on funding could come either in this spring, depending on the nature of the financial news for CIRM.

It was the second time in CIRM's brief life that it has approved grants without actually setting the funding in motion. In its first round of grants in 2005, also training programs, the board did not have the cash to fund the grants because of litigation. However, it wanted to send a message that it was in business and intended to move forward. By and large, that message was successful.

It is likely that today's action will also be reasonably successful in communicating the same message. The news release did not dwell on the hours that the board spent discussing what some board members called a financial crisis. The main reference in the news release to CIRM's financial plight was this paragraph:

"In light of the current financial situation in California, the board meeting began with a discussion of funding scenarios through 2010. At this time CIRM can fund all existing commitments through September of 2009."

CIRM is likely to review its financial condition again at board meetings in March and April.

You can find a list of grant winners and the size of their grants here.

"Bridges" Grants Approved by CIRM Board

The board of the California stem cell agency today all but approved the top-ranked applications for the Bridges to Stem Cell Research grant round but deferred actually funding them to a later date.

Final approval was delayed today because of quorum problems. However, another member of the board is expected later this afternoon and that should provide final action.

The applications that received approval were in the "recommended for funding" category that can be found here. CIRM is expected to identify the applicants later today.

CIRM Training Grants Approved

The California stem cell agency today approved tens of million of dollars in training grants for young stem cell scientists but deferred a decision on actually funding the efforts.

Approved were all the grants that the Grants Working Group said should be funded in the Training Grants II round. You can find the list here. CIRM is expected to issue a release later today identifying the winners.

CIRM Board to Act Today on Training Grants

The board of the California stem cell agency this morning decided to move forward with approval of two rounds of training grants but with a decision on funding to come later.

The board took the action following lengthy discussion of its current bleak financial condition.

Director Sherry Lansing, head of a Los Angeles foundation bearing her name, reiterated her plea that the board proceed with action on the grants, declaring that to do otherwise would send the wrong message.

Director Claire Pomeroy, dean of the UC Davis School of Medicine, argued that the first priority of the board should be fiscal responsibility. She said it was "most important to get our financial house in order."

Following the vote on the procedure, the board took a break and will resume its meeting in Burlingame shortly and will take up the specific grant applications.

CIRM Says California Stem Cell Report is 'One-Sided'

The chief PR person for the California stem cell agency this morning volunteered the following comment on the items that appeared last night on the California Stem Cell Report.

Don Gibbons said in an email:

"Once again you have written a one sided piece using only half Dr Pizzo's quote. He said we have heard two avenues this evening, a route to darkness AND a path to hope. We presented creative solutions to make existing funds stretch to meet all commitmets through October and a solution for ongoing funding that a national expert gave us 80 to 90 percent odds of suceeding."

Philip Pizzo is dean of the Stanford Medical School and a director of the California stem cell agency.

During last night's meeting, he raised questions about the proposal to sell bonds privately for CIRM.

At one point, Pizzo said that while he loved or respected the notion that there is a "pathway out of a route to darkness," the situation has changed dramatically from 2006 when CIRM sold bond anticipation notes to finance its operations. He said potential investors in CIRM bonds are feeling "tremendous pain right now." He said that "a reality check" might be in order on the prospects for the private placement plan.

PBS News Hour Examines Stem Cell Research

The PBS News Hour Thursday night broadcast an overview of the state of stem cell research, including discussion of the Obama Administraion's plans and the latest developments at Geron.

Featured were folks from UC San Francisco, Geron and Alan Trounson, president of the California stem cell agency. You can even catch a glimpse of this writer in a very brief comment. You can see the entire 8-minute video on the News Hour website.

California Stem Cell Money Woes in San Diego, Santa Barbara and San Francisco Area

How bad is the CIRM financial crisis? It is endangering the highly touted San Diego stem cell research consortium, according to the San Diego Union-Tribune.

Reporter Terri Somers said that financial woes have prevented the consortium "from securing the loans it needs to build a much ballyhooed $115 million stem cell research center (see rendering) in Torrey Pines." The consortium includes UC San Diego, Scripps, Burnham and Salk.

Somers wrote:

"San Diego is not alone in its troubles. The Buck Institute for Aging in the San Francisco Bay Area and the University of California Santa Barbara are among other California research institutes having difficulty obtaining money for research facilities.

"All three were planning to create stem cell research centers with a combination of private funds, loans and multimillion-dollar grants from the taxpayer-funded California Institute for Regenerative Medicine.

"But banks considering the loans now say they do not have the liquidity needed to finance the construction. And some lenders question whether California's budget crisis, which is preventing the state from issuing bonds, could stall its promised financing."

Somers continued:

"In an interview yesterday, Malin Burnham, a member of the San Diego consortium's board, recalled a recent conversation he had with a local banker about a $70 million construction loan for the research facility.

"He said, 'Malin, I'd love to do that deal. I know and like all four of your institutions, but I don't have any money to lend. The situation may change in 30 to 45 days, but today I just don't have any liquidity,' Burnham said."

Somers' story includes information from last night's CIRM board meeting.

CIRM Directors Wrestle With Bad News and Funding for Training

Directors of the California stem cell agency have put off action until at least later today on requests for $66 million in training grants following briefings that sketched out what some directors characterized as a financial crisis for the research funding enterprise.

Most of the nearly six-hour board meeting Thursday afternoon and evening in Burlingame, Ca., was devoted to what CIRM Chairman Robert Klein called a "crisis environment." Ultimately some directors began to question whether the board should even take up the requests for the training program grants. Some argued that they should be deferred at least until March or perhaps April when the state government financial picture might be clearer.

Others argued that the CIRM board should move forward with approvals with a caveat that the grants would be funded only if money was available. CIRM did that on its first round of grants in 2005, when it also faced the inability to sell the state bonds that it relies on.

Director Sherry Lansing(see photo), a former Hollywood film studio executive, said the agency should act on the training grants. She said,

"If we don't, we are sending a clear message that we are out of business."

The financial pressure on CIRM was bad news for applicants in the second-ranked tier of applications. Normally some of those are funded along with those in the top tier, but the directors' new caution would appear to make that unlikely whenever the applications come up for approval.

The board will resume its meeting this morning. You can listen in via the instructions that can be found here. Our reporting on the meeting is based on what could be heard on what was the first-ever audio Webcast of a CIRM board meeting.

Dark Financial Outlook for CIRM Disclosed Tonight

The financial condition of California's $3 billion stem cell agency tonight appeared bleak and "daunting," based on briefings provided to its 29-member board of directors.

One director, Philip Pizzo, dean of the Stanford School of Medicine, at one point described the presentations as akin to "a route to darkness."

CIRM's financial plight is the result of California's inability to sell state bonds because of the state's $40 billion budget crisis. CIRM relies on bond sales for funding. It has approved $635 million in grants, many covering several years, but currently does not have the cash to fund all of them.

The CIRM staff went through a detailed financial presentation, based on what we heard on the first ever audio Webcast of a CIRM board meeting. However, many of the specifics were not clear because the PowerPoint presentations containing them could not be viewed.

Nonetheless, the overall financial situation seemed challenging, to say the least.

CIRM Chairman Robert Klein promoted his plan to sell state bonds privately, which would appear to be the first ever such effort in the nation. The discussions also disclosed that the state of California is moving to sell other state bonds privately as well, which could theoretically make the state and CIRM financial competitors. Klein said, however, potential buyers of the CIRM bonds are not likely to be targeted by the state treasurer's office.

The briefings disclosed that even if the state budget crisis were solved tomorrow, CIRM would face financial difficulties. That's because it takes time to bring bonds to market. Bonds supporting more critical needs would be sold well before the state would consider offering the CIRM bonds.

Sherry Lansing, a CIRM director and head of a nonprofit foundation bearing her name, said,

"I don't think there is any other choice...We would be irresponsible not to try to do this(sell bonds privately)."

Following the staff presentations, the board adjourned for dinner. At the time of this writing, they are gathering to resume their meeting and continue the financial discussions. The proceedings can be heard by using the directions in the items just below.

Let's Hear Some Comments on CIRM's First Ever Webcast of a Board Meeting

If you are tuned into the CIRM board Webcast this afternoon and evening, please let us know what you think of the effort, either its technical aspects or the deliberations or both. You can comment by clicking on the word "comment" below. Anonymous comments are permitted. Or you can send your comments directly to djensen@californiastemcellreport.com.

Update on CIRM Board Webcast

If you are having trouble accessing the CIRM board Webcast this afternoon, Don Gibbons, chief communications officer for CIRM, reports that the correct access code is 984696. We entered that number in both boxes on the ATT screen and appear to be connected. The actual meeting has not yet begun, not an unusual delay for CIRM board meetings.

CIRM Finance Documents Surface Online

With only a few hours left before this afternoon's meeting of the board of the California stem cell agency, it has posted some figures on its website dealing with its current financial condition.

Missing is any kind of explanatory information about the significance of the numbers, definitions and assumptions used. None of the posted documents address the question of when the agency runs out of operational funds during the next 18 months if the state budget crisis continues. Nor do any address the question of when CIRM might run out of cash to pay grants already approved.

However, the three documents appear to show that CIRM's operating expenditures for the 2008-2009 fiscal year will be 22 percent, or $3 million, under budget, $10.4 million instead of $13.4 million. Much of the difference comes from a 20 percent variation ($1.4 million) in salaries and benefits, which are projected to hit $5.6 million, instead of the budgeted $7 million.

Some CIRM board members have expressed concern that the agency is under-staffed and that employees could suffer from burn-out because of their long hours. Indeed, the most recent audit of the agency shows $247,351 in outstanding unpaid vacation and annual leave as of last July. The agency is capped by law at 50 employees, which is one of the reasons for its large, $2.7 million outside contracts budget. Currently the agency has 38 staffers, the highest figure in its history. It has had openings for six hires for many months but has not filled the positions.

Other major budget categories projected to be under budget for the fiscal year include: outside contracts, $2.2 million, down $514,000 or 19 percent from projections; "other travel," down $206,000 or 37 percent from projections, and "other," down $276,000 or 31 percent.

The CIRM grant funding summary shows $703 million approved by the CIRM board by the end of the fiscal year, with $139 million actually out the door. No projections are made beyond June 30.

Not posted to the CIRM website is the latest audit of the agency by Macias Gini &O'Connell of Sacramento, Ca,, which is the firm that CIRM pays for annual audits. The audit covers the 2007-08 fiscal year and can be found on the state controllers website.

Here are links to the other two CIRM documents: actual and projected expenditures, budget allocation and expenditures.

New Instructions for CIRM Board Webcast

The California stem cell agency has posted fresh instructions on how to view the Webcast of its meeting today and Friday as well as those for listening in by telephone.

The main changes appear to be separate phone numbers for today and Friday. You can find the details here.

Bravo! Live Webcast of This Week's CIRM Board Meeting

The California stem cell agency late today announced it will offer – for the first time ever -- live, Internet access to the proceedings of its board meeting with the first Webcast coming tomorrow (Jan. 29 California time).

The move is an excellent and far-reaching step in opening up the proceedings to all those interested in the $3 billion agency, which is the largest source in the world for funding of human embryonic stem cell research. The action also furthers the agency's goals to enhance stem cell research collaboration both nationally and internationally.

The announcement of the Internet and phone access is not yet up on the CIRM website, but here is what Melissa King, who is the go-to person on all CIRM board matters, told subscribers to one of CIRM's alert services:

"We are pleased to offer you the ability to listen in to the ICOC meetings taking place on Thursday, 1/29 and Friday, 1/30 either on the phone or online. The details are below.

"NOTE: you will need Windows Media Player or RealPlayer to stream the audio online.

"Dial in: (866) 254-5938              
"Access Code: 984698

"Web streaming URL:
"http://65.197.1.15/att/confcast

"Enter Conference ID# 984698  Then click Go.

"Please note these are listen only access methods which we have made an effort to offer given requests for the ability to listen in live to our meetings. If you would like to address the ICOC with questions or comments in the context of this meeting, you are welcome to either attend the meeting in person or get written questions or comments pertinent to specific agenda items in to CIRM 5 days in advance of the meeting. General public comments are welcome (in writing in advance) as well, but we cannot guarantee they will be addressed at any specific meeting. Thank you."

CIRM has been talking about and working on providing this sort of access for some time. The agency and all those embedded in the CIRM effort are to be commended for making the Webcast available at this point. That said, we should caution potential viewers that CIRM board meetings do not always have the drama potential of, for example, The Wire HBO series. First-time Webcast efforts like this sometimes also have glitches. But the CIRM staff, we are certain, will overcome any difficulties. Congratulations to all.

(Editor's note: In the first paragraph of this item, we specified Jan. 29 California time. That's because a goodly number of those interested in CIRM are beyond the International Dateline. We are aware of that because they are among the readers of this blog.)

Correction

The "More Info Up" item on Jan. 28, 2009, incorrectly said that the state controller will begin issuing IOUs on Sunday. He will in fact be delaying payments, rather than issuing IOUs.

More Info Up for Tomorrow's CIRM Board Meeting, But None on its Financial Condition

Over the last two days, the California stem cell agency has added additional background material to its board agenda for tomorrow and Friday, but the public remains in the dark about such matters as CIRM's detailed views on its financial condition.

The material includes the latest version of the loan administration policy for CIRM's proposed $500 million biotech loan program and changes in research standards for CIRM grantees.

Also up is material connected to the effort by CIRM Chairman Robert Klein to have the stem cell agency join the list of those in Washington trying to climb aboard the trillion-dollar bailout/stimulus gravy train.

Included is a copy of a draft letter presented last week to the CIRM Finance Subcommittee that seems to have been intended to be sent out prior to the board meeting tomorrow. Klein's agenda also includes links to a Jan. 15 version of the House's 258-page stimulus bill and an undated, 76-page "discussion draft" of a report on the proposal.

Missing from CIRM board agenda are any documents having to do with CIRM's budget and financial condition as the state faces a $40 billion budget crisis. On Sunday, State Controller John Chiang is going to start stiffing state creditors – delaying payments for at least 30 days.

This time Chiang said those being stiffed will include "more than a million aged, blind and disabled " who need state assistance "to pay their rent, utilities or put food on their tables."

The stem cell agency is swaddled in relatively comfortable financial security that means that over the short term grantees will continue to be paid along with vendors. Over a longer term, nine months from now, CIRM appears to $435 million short of what it needs to fulfill the terms of all the grants it has approved. CIRM depends on state bonds for cash, and the state is not selling any as its credit rating continues to plummet.

(An earlier version of this item said incorrectly that the state controller would begin issuing IOUs on Sunday.)