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stem cells (1998)----------------------------"Starry Night," by Vincent van Gogh (1889)

embryonic stem cell colonies from the lab of developmental biologist James Thompson
Source: University of Wisconsin-Madison.
Used with permission © University of Wisconsin Board of Regents

An on-going legal battle is raging between the Independent Citizens' Oversight Committee (ICOC) of the California Institute for Regenerative Medicine (CIRM), established by the passage in November, 2004, of Proposition 71, and embryonic stem cell research opponents who contend that the ICOC has no legal authority to raise or spend the $3 billion authorized for such research by Proposition 71.

The efforts of plaintiffs California Family Bioethics Council, represented by David Llewellyn, and The People's Advocate, represented by Dana Cody, were consolidated into a single "reverse validation action" by a decision of Alameda County Superior Court Judge Bonnie Sabraw on August 4, 2005.

As reported on May 11, 2005, on this web site, "California cannot sell $3 billion in embryonic stem cell research bonds until a lawsuit challenging its right to do so is resolved."

Yesterday, in an appearance on 89.3 KPCC's public affairs program Talk of the City with Kitty Felde, Robert Klein, Chair of the ICOC, was asked by host Kitty Felde, "So when's the soonest you think the State of California could begin selling bonds?"

Mr. Klein replied:

"We have created a very special financing approach to protect the State of California and to move this forward and those are called bond anticipation notes. [Kitty: ah] and those bond anticipation notes specifically say that in the five percent case that we were to lose this lawsuit those individuals and foundations that buy these bond anticipation notes will make these loans to the state a grant, so they'll contribute the money. Basically, philanthropic foundations and individuals interested in moving medical research forward, who would normally be making general grants for research, are agreeing to buy these bond anticipation notes with the knowledge that they will, at the very least accomplish their purpose of advancing research and with the expectation that when we win the suit bonds can be issued that will pay them back."

The California Debt and Investment Advisory Commission (CDIAC), created in 1981, is the official state agency to which issuers of public bonds must report their intentions to offer such financial instruments and to which they must report the sale of their bonds after the fact.

The creation and responsibilities of the CDIAC are spelled out in Section 8855 of the California Government Code.

Paragraph (h)(3) of that code section says:

"(h) The commission shall do all of the following:… (3) Collect, maintain, and provide comprehensive information on all state and all local debt authorization and issuance, and serve as a statistical clearinghouse for all state and local debt issues. This information shall be readily available upon request by any public official or any member of the public."

Paragraphs (k) and (l) set out the reporting requirements when a state agency such as the ICOC is preparing to, or has, issued any bonded indebtedness:

"(k) The issuer of any proposed new debt issue of state or local government shall, no later than 30 days prior to the sale of any debt issue at public or private sale, give written notice of the proposed sale to the commission, by mail, postage prepaid. This subdivision shall also apply to any nonprofit public benefit corporation incorporated for the purpose of acquiring student loans. The notice shall include the proposed sale date, the name of the issuer, the type of debt issue, and the estimated principal amount of the debt. Failure to give this notice shall not affect the validity of the sale.

"(l) The issuer of any new debt issue of state or local government, not later than 45 days after the signing of the bond purchase contract in a negotiated or private financing, or after the acceptance of a bid in a competitive offering, shall submit a report of final sale to the commission by mail, postage prepaid, or by any other method approved by the commission. A copy of the final official statement for the issue shall accompany the report of final sale. The commission may require information to be submitted in the report of final sale that it considers appropriate."

During its meeting on May 9, 2005, the California Stem Cell Research and Cures Finance Committee considered these agenda items:

1. Per Government Code Section 16760, authorize the State Treasurer to employ bond counsel for legal opinions related to the sale of bonds and commercial paper under the California Stem Cell Research and Cures Bond Act of 2004.

2. Consideration of Resolution I, under the California Stem Cell Research and Cures Bond Act of 2004, authorizing the issuance of State of California Stem Cell Research and Cures Bonds or Commercial Paper Notes In the Aggregate Principal Amount Not to Exceed $3,000,000,000. (Including provisions authorizing the agency to obtain loans from the Pooled Money Investment Account or the General Fund).

3. Consideration of Resolution II, under the California Stem Cell Research and Cures Bond Act of 2004, authorizing the issuance of State of California Stem Cell Research and Cures Refunding Bonds In the Aggregate Principal Amount Not to Exceed $3,000,000,000.

4. Consideration of Resolution III, under the California Stem Cell Research and Cures Bond Act of 2004, authorizing the issuance of State of California Stem Cell Research and Cures Bond Anticipation Notes in the Aggregate Principal Amount Not to Exceed $300,000,000

However, according to a representative of the CDIAC, as of August 26, 2005, there has been "no filing of any kind by the ICOC" for the intended sale of any of the general obligation bonds authorized in the amount of $3 billion by Proposition 71 or of the bond anticipation notes (BANs) discussed by ICOC Chair Klein in his August 25, 2005, appearance on KPCC.

The current earliest possible date for the sale of BANs as bridge financing for the ICOC, under the provisions set out in California Government Code 8855 (k), is therefore September 28, 2005.

According to Dana Cody, plaintiff's attorney in the consolidated reverse validation action against the ICOC, a case management conference is scheduled for September 15, 2005, to arrange for the consideration of the case.

According to the August 5, 2005, report "Judge combines stem cell lawsuits," by Contra Costa Times reporter Sandy Kleffman, Alameda County Superior Court Judge Bonnie Sabraw's ruling in favor of the consolidation motion filed by California Attorney General Bill Lockyer:

"…means the cases will be put on a fast track. State law requires speedy handling of "bond validation" actions such as Llewellyn's suit, Sabraw noted in her decision.

"Even so, it is unlikely there will be a resolution before next year, said Deputy Attorney General Tamar Pachter.

"To keep the program afloat until then, stem cell leaders have been exploring issuing $200 million in bond anticipation notes.

"The goal would be to have charitable organizations that support stem cell research buy the notes, taking a risk they might not be repaid if a court blocks the bond sale. The state has never before issued bond anticipation notes with such legal cases pending.

"[California Family Bioethics Council attorney David] Llewellyn said Thursday he likely would take legal action to try to block such a move."

The essence of this case is that, under the terms of Proposition 71, the State of California was to issue and be responsible for the repayment of (at least) $6 billion to cover the cost of raising $3 billion from bond sales for the ICOC to spend, while the ICOC was to exist and operate independently of the bureaucratic and political control of the State of California, its elected officials, and the voter/taxpayers these officials represent.