State Takes Lead in Stem Cell Efforts

Gov. Arnold Schwarzenegger on Thursday ordered a loan of up to $150 million to the state’s voter-approved stem cell research institute, catapulting California into the lead as the nation’s top public funder of the divisive research.

The governor’s action, a day after President Bush vetoed expanded federal support for embryonic stem cell science, is expected to kick-start the state’s long-delayed program to pay for cutting-edge research projects.

“We can no longer afford to wait to fund this important research,” Schwarzenegger wrote in a letter that directed his finance director to make the loan. “I remain committed to advancing stem cell research in California, in the promise it holds for millions of our citizens who suffer from chronic diseases and injuries that could be helped as a result of stem cell research.”

Schwarzenegger’s decision, which drew praise from research advocates but was derided as a political stunt by opponents, comes with some financial risk for the state.

In 2004, 59% of voters passed Proposition 71 to authorize $3 billion in bonds to fund stem cell research. But litigation has paralyzed the bond process. A Superior Court judge issued a strongly worded ruling in May in favor of the state, calling the bonds valid. However, the plaintiffs -- taxpayer and religious groups -- have vowed an appeal. If Proposition 71 is deemed unconstitutional, the state loan would not be repaid.

Schwarzenegger spokeswoman Margita Thompson said that, although the governor could have taken such action earlier, the court ruling persuaded him that the state would ultimately prevail. With the Bush veto, he “felt it was critical to take action to ensure that stem cell research continues,” she said. Schwarzenegger has been a longtime supporter of stem cell research and endorsed Proposition 71, his staff said.

The Republican governor’s move could also help him win over moderate voters by drawing a sharp distinction with the president, who is unpopular in California. The action drew derision from the governor’s opponent in the November election, Democrat Phil Angelides, who called it a “smokescreen to cloud the memory of California voters that it was Arnold Schwarzenegger who campaigned for President Bush in Ohio and helped put him back into office.

“For the past year, while I was fighting for immediate funding for the California Institute of Regenerative Medicine, the governor failed to lift a finger to stand up to the anti-research activists,” Angelides said in a statement.

California Democratic Party spokesman Roger Salazar said in a statement that Schwarzenegger “sat silent as his supporters took Proposition 71 to court.”

Plaintiffs also objected to the maneuver, saying they would consider seeking a restraining order to prevent it.

“It’s inappropriate,” said Dana Cody, executive director of Life Legal Defense Foundation, which represents two taxpayer groups that challenged Proposition 71. “It is a risk to the taxpayers. We may or may not prevail, but it’s still a risk.”

Institute officials, however, celebrated the news.

Robert Klein, the main proponent of the stem cell ballot measure and chairman of the institute’s citizen oversight body, called it “a tremendous day” and said the funding would allow the institute “to move immediately into a major program of research in California for the benefit of patients worldwide.”

Institute President Zach Hall said that once grant proposals are received, dollars could flow to research by early next year.

Ironically, Hall noted, Bush’s first-ever veto -- based on his opposition to the destruction of embryos in some forms of embryonic stem cell research -- served California well. “I think with one stroke, the president energized [the institute’s] program,” he said.

The promised funding instantly guaranteed that California will leapfrog other states in public funding of the research, which many believe holds potential cures for spinal cord injuries and a range of diseases, including Parkinson’s and diabetes.

Connecticut, Maryland, Illinois and New Jersey have approved some state funding for the work. And on Thursday, the governor of Illinois announced that he was diverting $5 million from the state budget for stem cell research -- also in response to the Bush veto.

Schwarzenegger’s $150 million loan dwarfs those efforts.

It is also about quadruple the budget for embryonic stem cell research at the federal government’s National Institutes of Health, which is strictly limited by the Bush administration to select stem cell lines created before 2001.

The loan, however, is just half of the estimated $300 million that the initiative, if upheld by the courts, will direct to stem cell research every year for a decade.

The loan was brokered under an obscure section of Proposition 71 that allows the state finance director to provide bridge financing for bonds that are authorized but not yet issued.

The agency’s financing body -- made up of the treasurer, controller, finance director and Klein -- earlier this year authorized $200 million in rare bond anticipation notes.

They were authorized for sale to private philanthropists who will be repaid only if the litigation is resolved in the state’s favor. Klein brokered the sale of $14 million in those bonds -- money that has already gone to training grants at California institutions.

Cody’s group filed a lawsuit three weeks ago that seeks the return of that money and to block the issuance of more such bonds.

More than $30 million more will soon be issued to other philanthropists, Klein said, bringing the total to about $50 million. The state’s $150 million loan, then, would bridge the remainder of the $200 million until the notes are sold.

Klein said Schwarzenegger’s staff sought him out Wednesday and “asked what they could do” after it became clear that the president would go forward with his veto.

They worked quickly.

Klein described the unusual loan Thursday as a “mechanism that I designed yesterday with the governor’s staff.”

Critics who have called for more transparency and legislative oversight of the institute said Thursday that Schwarzenegger missed his chance to impose it.

“Along with public funding should come public oversight. Instead, the governor gave CIRM a blank check,” said Jesse Reynolds of the Center for Genetics and Society.

Another watchdog group that has worked to ensure that the institute is accountable to taxpayers cautiously applauded the loan.

It’s “better than going hat-in-hand to fat cats with a potential vested interest in the outcome, begging for money,” said John Simpson of the Foundation for Taxpayer and Consumer Rights in Santa Monica, who criticized a recent private gala held by the institute to raise funds to keep it afloat.

Among stem cell scientists Thursday, the mood was good.

“This is wonderful news,” said Dr. Arnold Kriegstein, who heads a stem cell research program at UC San Francisco and has already received training grants for 16 graduate, postgraduate and postdoctoral fellows.

“This amount of funding promises to make a significant impact on labs all over,” he said.

Patient advocates were elated.

Susan DeLaurentis, who heads the Los Angeles-based Alliance for Stem Cell Research, said the Bush veto “was a dark day, and today, the sun has come out again.... To have Gov. Schwarzenegger restore hope to all these people, it’s fantastic.”