CA: Stem cells may not be taxpayers' boon (Prop 71 bonds could cost more than expected)

Oakland Tribune ^ | 11/01/05 | Rebecca Veasley

[NormsRevenge]

SAN FRANCISCO — Despite promises that California taxpayers could reap up to a billion dollars in royalties by supporting a state-funded stem cell research program, it is now unclear whether the public will reap any financial reward from the initiative passed overwhelmingly by voters a year ago under Proposition 71.

What's more, taxpayers could end up paying more than the expected $3 billion in bonds over the next 10 years to fund stem cell research because of restrictions on the types of bonds that can be issued, experts and stake holders told lawmakers at a hearing Monday.

State Sen. Deborah Ortiz, D-Sacramento, led a daylong hearing on royalties and stem cell research, calling on experts from around the country to testify on the ins and outs of patent and intellectual property law.

"How do we ensure that California residents get a significant return on their investment instem cell research?" Ortiz, who is chairwoman of the subcommittee overseeing the stem cell program, asked at the hearing's outset. "Direct royalties may not be possible if we are using tax-exempt bonds for research grants."

Under Proposition 71, the state is allowed to issue up to $350 million a year over 10 years in either tax-exempt bonds or taxable bonds. Those proceeds will fund stem cell research in the state at universities and private biomedical companies.

But because of Internal Revenue Service limitations on tax-exempt bonds, the state may have to issue taxable bonds, which could increase the cost to the state by up to $1 billion.

Although long-term interest rates are better today than a year ago, the overall cost could be higher if the state had to issue taxable bonds, said Dan Carson of the state Legislative Analyst's Office.

This is because under IRS rules, tax-exempt bond proceeds can only go toward government programs and the government can't sit on the proceeds, said Juan Fernandez, counsel for the state Treasurer's Office.

"We knew there would be issues," Fernandez told Ortiz and other lawmakers. "There are restrictions on tax-exempt bonds and medical research."

The state has not issued any bonds or loans to the California Institute for Regenerative Medicine, the new state agency tasked with running the stem cell research initiative, because of outstanding litigation, Fernandez said.

In the meantime, the Independent Citizens Oversight Committee — the 29-member committee made up of university leaders and patient advocates who oversee the new stem cell research institute — is moving forward with crafting an intellectual property policy. Once that policy is in place and outstanding lawsuits challenging the new stem cell institute have been settled, then the state Treasurer's Office will consult with the IRS on which bonds to issue, Fernandez said.

The ICOC is considering adopting intellectual policy recommendations proposed in August by the California Council on Science and Technology, comprised of university and business leaders.

The council recommended that the state adopt a similar framework to the federal government when handing out research grants, allowing grantees to own intellectual property rights and not requiring grantees to provide a revenue stream for their work.

This policy, put into law in 1980 as the Bayh-Dole Act, "serves as a driver for technology transfer in this country," said James Pooley, partner at Milbank, Tweed, Hadley and McCloy, who helped develop the council's recommendations.

"If industry doesn't find a competitive interest to invest in CIRM research, it will invest elsewhere," Pooley warned.

Assemblyman Dave Jones, D-Sacramento, argued that if the state doesn't require grantees to provide a revenue stream for their work, it runs contrary to the letter and spirit of Proposition 71, which promised that taxpayers would reap a return on their investment.

And the council's recommendations don't address another promise to voters: That any therapies developed through the stem cell program would be available at low or no cost to the state's poor and uninsured.

"There's no assurance that these benefits will flow to people without health care," Ortiz said, adding that she hoped the ICOC would take this into consideration when drafting its intellectual property rules.

Ed Penhoet, vice chairman of the ICOC, testified that the new stem cell institute wouldn't make any intellectual property decisions until perhaps February.

[Adder]

"What's more, taxpayers could end up paying more than the expected $3 billion in bonds over the next 10 years"

WHAT??? NOOOO!!!!

That sure can't be!
I am stunned...simply stunned.

[Born Conservative]

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