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The Brawl in California

3 minute read
Sonja Steptoe/Los Angeles

Think the mud wrestling over stem cells is ugly in Washington? Wait till you get to the states. Stem-cell proponents consoled themselves after President Bush’s veto with the hope that friendly state governments would pick up the funding slack, and indeed California’s and five others’ (see box) are trying to do just that. But the Golden State’s initiative–widely seen as the one with the most promise–is proving that stem-cell politics outside the Beltway is no less nasty than inside.

Bush had no sooner given the congressional action the thumbs-down than Governor Arnold Schwarzenegger, left, stepped forward and pledged a $150 million state loan to sponsor the fledgling California Institute for Regenerative Medicine, which is the state agency responsible for funding stem-cell research. Good news for supporters, right? Maybe not.

The institute was created by a November 2004 ballot measure authorizing the sale of $3 billion in bonds over 10 years to fund stem-cell research at California universities and institutions. Supporters said the law–the first of its kind in the nation–would be a fiscal and scientific jackpot, wooing top researchers and private investors to California. They also forecast that medical breakthroughs could produce therapies generating $4 billion in annual revenue within 10 years.

But the new law was immediately met by a series of legal challenges from religious and taxpayer groups opposed to stem-cell research. The most serious threat is the claim that the ballot measure violates the state’s constitution because the institute and its oversight committee are not under exclusive state control. At trial, the judge disagreed, declaring the institute “firmly under the management and control of the state.” That decision is now on appeal.

The unresolved litigation has unnerved investors and doomed attempts to raise money through the public-bond sale that would provide the expected $3 billion. Alternatively, the institute tried to float bond anticipation notes to buyers who would get refunds from the eventual sales of the bonds. But because of the ongoing lawsuit, there were few takers in the public market even for those. Half a dozen private foundations bought $14 million of the notes. And the institute recently sold an additional $30 million to $35 million of them. But when it began using the money to fund fellowships at state research facilities, right on cue, opponents went back to court seeking an order refunding at least some of the money to the state treasury. Meanwhile, the influx of talent anticipated to arrive with the 2004 law has ended up being more of an outflow, with some of the country’s best scientists being recruited away, including two genetics researchers who turned down posts at Stanford’s Stem Cell Biology Institute last year to take jobs in Singapore.

Schwarzenegger reaped short-term political rewards by making the $150 million bridge loan. Defying an unpopular Republican President, the re-election-minded Governor is burnishing his moderate image. But if the state’s stem-cell law is ultimately struck down, the loan can’t be repaid, and the Governor will have to answer for gambling with $150 million when the state has a $4.1 billion operating deficit. It’s all enough to make Washington look civilized.

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