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Medicine agency stays immune to budget cuts

[Quotes CGS's Jesse Reynolds]

by Katie WorthSan Francisco Examiner
July 11th, 2010

Public libraries, special education programs, law enforcement agencies, parks, services for the elderly — all have been wounded by the aggressive assault of California’s ruthless budget-slashing sword this recession.

But nary a paper cut has injured the budget of the state-funded California Institute for Regenerative Medicine.

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

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

The San Francisco-based CIRM was created by Proposition 71, approved by the state’s voters in 2004. The measure authorized $3 billion in state bonds to go toward stem cell research over a minimum of 10 years.

It was approved at a time when President George W. Bush had banned federal funding for embryonic stem cell research, and universities and other research institutions were forced to carefully separate their federally funded adult stem cell research from their privately funded embryonic stem cell research.

Supporters of Prop. 71 persuasively promoted the disease-curing promise of the young embryonic stem cell research, while opponents fell into two groups. One held Bush’s ideology that embryonic stem cell research was unethical because it uses fertilized human eggs. The other group of opponents included watchdog groups and science ethicists who supported the research intended by the measure, but were concerned the bill did not provide adequate oversight of the new agency, or give Californians enough return on their massive investment.

After two years of legal wrangling, CIRM was finally allowed to start handing out grants. As of last month, the agency had issued 364 grants to dozens of institutions, totaling more than $1 billion — about a third of the money it will spend.

While some of the outcomes of this research have proved very promising — including potential treatments for serious diseases like macular degeneration, cancer and diabetes — watchdog groups continue to hound the agency with charges of lax fiscal responsibility.

Jesse Reynolds, a policy analyst for the Berkeley-based Center for Genetics and Society, said the agency is operated like almost no other government agency — and in no small part because it is immune from the budget cuts other state agencies are suffering.

“The level of spending at CIRM is dramatically out of line with the state’s fiscal situation,” he said. “CIRM has a stream of dedicated revenue and, for the most part, answers to no one. So as a consequence, it’s lavishly spending money while other state programs face severe cutbacks.”

In fact, CIRM’s budget is funded before that of schools, parks or other state agencies because it is fueled by general-obligation bonds. Because Prop. 71 did not create a new source of funding to pay off the bonds, they are repaid out of the state’s general fund — the same pot of money that also pays for most other basic state functions. Though the agency began handing out grants in 2007, only now is the state budget starting to feel the burden of that obligation: The bonds were structured in a way that the state only had to begin paying them this year.

Prop. 71 author and CIRM Chairman Robert Klein defended the funding, noting that a recent economic report estimated that the agency’s grants have already generated $100 million in tax revenue. He argued that in effect, the bond payments would make themselves for a while.

But critic Reynolds noted that the agency is taking advantage of its untouchable pool of money by expanding its operating budget, even at a time in which most other government agencies have been left desperately wanting.

In June, the agency’s board of directors approved a new budget, which, at $15.7 million is $2.7 million larger than it has ever been. According to the agency, the extra spending was necessary to grow its staff, pay for benefits, improve the IT system, host more scientific meetings and allow for more out-of-state travel. This fiscal year’s travel budget has increased from $40,000 to $100,000, according to the budget notes.

Klein said that even with this larger budget, the agency is still well under the 6 percent overhead limit written into Prop. 71 — and that limit is well within the best-practice standards for grant-providing institutions.

He said the increased travel budget is necessary because, as projects approach clinical trials, more meetings between scientists are necessary.

He also defended the agency’s contracting of Alan Lewis to the position of vice president for research and development — at a cost of $250,000 for part-time work over six months. He said that price was lower than what Lewis would be paid in the private sector.

Klein noted that one potential therapy, if successful, would eliminate the need in some people for bone marrow transplants — which currently cost $250,000.

“First of all, we’re saving lives,” Klein said. “Secondly, every life we take off the bone marrow transplant list saves $250,000.

“So my defense is by getting the right person with a lifetime of experience, hiring them at a third of what they would be paid by industry, we are getting this person who is working on 14 different therapies that are trying to get to human trials.”

And that, he said, will ultimately save the state money.

The remaining $2 billion of tax-funded research authorized by Prop. 71 will likely last the agency for another seven years, Klein said. After that, voters may be faced with another decision.

“I think that a strong case will be made to the voters, based on the therapies that are then in human trials, to then approve more funding, to keep California at the leading edge of research that will reduce human suffering through the use of regenerative medicine,” Klein said.

Critic Reynolds said Klein and his crew may find California voters much less inclined to fund the research in 2017 than they were in 2004.

“Prop. 71 passed in a litmus-test environment: [Voters were asked] ‘Do you support stem cell research, or do you support Bush?’ and that case can no longer be made,” Reynolds said. “Not to mention, the state’s fiscal situation would need a dramatic turnaround before the voters would consider anything like this.”

CIRM aims to add more staff to save money


When state voters approved Proposition 71 in 2004, they limited the number of employees at the California Institute for Regenerative Medicine to just 50 — a provision meant to assure voters that overhead would remain low.

But five years later, the agency is finding the work involved in managing $3 billion in grants overwhelming for such a small staff.

CIRM has managed to get around the provision by contracting out work rather than hiring staff. But that costs more than hiring people in-house, explained CIRM Chairman Robert Klein.

So, the agency is supporting a bill written by state Sen. Elaine Kontominas Alquist, D-San Jose, that would remove the 50-person cap.

Previous bills aiming to amend Prop. 71 have failed — each time, because CIRM has advocated against them. Since the proposition requires a super-super majority of 70 percent of lawmakers’ support in order to make any adjustments to the statutes governing CIRM, agency heads have not found it difficult to kill those bills it hasn’t liked.

This bill, however, the agency does like. As it stands, the agency employs 45 people, but has argued that more are necessary to handle the hundreds of millions of tax-funded research dollars it gives away each year.

David Jensen, a retired newspaper editor who has exhaustively blogged about the agency, said the 50-person cap was a “foolish” inclusion in the initial proposition.

“But other foolish provisions still afflict the agency and are not likely to be eased in the near future,” he said.

Where the money goes

The California Institute for Regenerative Medicine’s operating budget this fiscal year is $15.7 million — 20 percent higher than last year’s budget of $12.9 million.

The main sources of this increase are:

$1.1 million to pay for increased staffing, from 45 staffers to at least 50

$400,000 for state-mandated retirement benefits for employees

$506,000 in external contracts, including a new salary survey, an external scientific review, and an online journal

$633,000 for grant working group meetings

$431,000 for a new grant-management system and IT manager

$100,000 for out-of-state travel, increased from $40,000 in previous years




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