California’s stem cell board began last week’s two-day meeting with a much needed in-depth presentation from the staff on the agency’s financial outlook. The California Institute for Regenerative Medicine (CIRM) — like the entire Golden State —  is in dire straits.

The grim reality: To merely maintain funding for the grants authorized to date  by the board, known as the Independent Citizens Oversight Committee (ICOC), through the end of 2010, the agency will need to raise $133.6 million.  To fund the current programs and others that are scheduled, but not yet approved, would take $377.1 million.

Without an infusion of cash, CIRM will run of money by the end of October.

Actually the financial mess is worse than just outlined.  These calculations don’t factor in a $251 million loan from the California’s Pooled Money Investment Account.  That’s due to be paid back in April, but CIRM hopes the loan will be extended.

This mess isn’t CIRM’s making.  It’s caused by the totally irresponsible and dysfunctional Governor and Legislature. They’re trying to fill a $42 billion budget gap and are gridlocked because of California’s ridiculous requirement that the state’s budget be passed by a two-thirds majority.

So long as the budget crisis is unresolved, the state can’t sell bonds. Even if the crisis were solved, given the state of the nation’s credit markets, it’s not at all clear California could sell bonds.

Proposition 71, you’ll recall, created CIRM and planned to finance it with $3 billion in general obligation bonds.  After resolving legal challenges, $250 million in bonds were sold in 2007.  Now and for the foreseeable future there doesn’t seem to be any likelihood of public bond sales to benefit the stem cell agency.

California can’t enter the public bond market until the budget crisis is fixed. Solving the state’s budget crisis will likely require a special election for voter approval of some of the remedies. That could easily drag into the fall or the deal could  even be nixed at the polls.

Maybe the state can return to the bond market by the fall or late this year.  When that finally happens, though, other state bond issues are likely to have priority over the stem cell agency.

Facing  this mess, Chairman Bob Klein, proposes to sell CIRM bonds through private placement, which is virtually unprecedented.  He notes  that when the enterprise was threatened by legal challenges, CIRM was able to place privately  about $44 million in so-call bond anticipation notes (BANs). According to David Jensen’s California Stem Cell Report, Treasurer Bill Lockyer doesn’t object to a CIRM effort to privately place bonds. He quotes spkesman Tom Dresslar:

"Our office has informed CIRM we will have no problem with CIRM
conducting a private placement, as long as it doesn’t compete with any
State efforts to issue taxable bonds for other purposes."

However, former ICOC Vice Chairman Ed Penhoet , who played a key role in selling many of the BANS, notes that most of the purchasers acted for philanthropic reasons and were prepared to lose the money if the courts ruled against CIRM.

Those BANs were sold when the economy was booming, riding high on the housing bubble.  Today those sorts of investors are feeling the pinch like all the rest of us — perhaps in some cases even more so.  It is by no means clear that a significant amount can be raised for CIRM by selling bonds privately.

Taking note of the situation, the ICOC, prudently decided only which grants up for consideration at the meeting would be funded if money becomes available. The board expects that a clearer picture of the state situation and the possibility of success of a private bond placement will emerge by its March and April meetings. If it looks like the money will be there, the ICOC will authorize funding.

Generally I’m an optimistic fellow, but I’m hard-pressed to see how this works out well.

Meantime, CIRM needs to ratchet back all discretionary spending.  Right now there is a request seeking proposals for a contract for a Washington lobbyist for up to $20,000 a month for 10 months. That’s $200K.  And then there is still the proposal  to fund the International Stem Cell Research Committee meeting in San Francisco to the tune of $400K.

My point is this: $100K here and $100K there and soon you’re talking real money. CIRM simply doesn’t have it, doesn’t know where it’s coming from and needs to stop spending on anything other than existing commitments until there is a clear way out of this crisis. Anything else runs the grave risk of simply digging the hole deeper.