Fifteen months after California voters approved Proposition 71 — authorizing the sale of $3 billion in state bonds to fund stem cell research — the state’s stem cell institute has yet to dole out any money. Beset by legal woes, the California Institute of Regenerative Medicine has been unable to float a single bond. But will that change after Feb. 27, when a trial on two lawsuits begins in the Alameda County Superior Court. Hank Greely, JD, a law professor and chair of the Stanford Center for Biomedical Ethics’ steering committee, discussed the arguments of the case and the possible outcome.

Question: What’s at stake for stem cell research in this case?

Greely: $3 billion. Although a negative outcome wouldn’t cripple this research, it certainly would slow it down.

Q: Is this essentially a move by pro-life advocates who are morally opposed to this research?

Greely: There are two cases that were consolidated in this trial. The plaintiffs in both their cases are not pro-life groups. The plaintiff in one case is an established anti-tax group; the plaintiff in the other case is a relatively new group that claims to be largely concerned with conflicts of interest and other problems they see in the proposition. It is interesting, though, that their legal representation is being provided by the Life Legal Defense Fund, which is clearly very interested in the moral issues around abortion.

Q: Can you boil down the essential arguments on both sides?

Greely: The main argument against the proposition is that it doesn’t provide enough state control over the expenditures of state money. The proposition sets up a semi-independent organization with its own defined set of directors, and the state has, by very clear intent of the drafters, limited direct control over that. The California state constitution contains a provision that requires the state to have control over the expenditure of state money. That’s the core claim made against Prop. 71.

The defendants have two very strong arguments. The first is that Prop. 71 is both a statute and a constitutional amendment. The amendment expressly authorized the California Institute of Regenerative Medicine to spend this money. Because it’s an amendment to the constitution, it’s hard to call it unconstitutional.

Also, Prop. 71 was drafted very carefully in light of concerns about Prop. 10 [the tobacco tax proposition from 1998] — which also established a semi-independent spending authority. The California courts upheld Prop. 10 and outlined a series of criteria; Prop. 71 was written with this criteria in mind. It would be quite surprising if it was found to violate that constitutional provision.

Q: How long could the trial last?

Greely: It’s hard to know about what to expect on Feb. 27. I’m sort of in a position like that of a doctor being asked to comment on someone else’s patient. I’m not involved in this trial. My best guess is that the trial won’t take very long, and we should get resolution shortly after the 27th. But there will probably be appeals if the proposition wins and is upheld.

Q: How will the trial’s outcome impact the institute’s ability to sell bonds?

Greely: Really the question here is more one of confidence than anything else. I believe the plaintiffs will lose, and I think most people who have looked at this strongly believe the plaintiffs will lose, but the potential bond buyers need to feel quite confident that the plaintiffs will lose.

The bond market wants to be very certain that these bonds will be repaid, which means even a trial victory may not be enough for a bond market. It may have to go through appeals and be affirmed on appeals before the bonds can actually be sold. Until the bonds are sold, the institute won’t have that $3 billion.

If things break well, the institute may be able to sell the bonds in late 2006 and get some funding.

And there is another possibility. There is a process called the bond anticipation note, where you sell bonds in anticipation that the later, formal bonds will be issued to pay off the first ones you sell. It may be possible for the institute to begin to sell those bond anticipation notes—to borrow money in anticipation of the bonds—after the trial court decision.

That’s not a perfect solution because those bonds are more expensive than the official state bonds. They carry a higher interest rate. But it might be worth exploring to get at least some of the activities of the institute up and running before there is a final resolution of this lawsuit.

Posted: 02/22/06