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Stem cell issues near a boil

by Laura MecoySacramento Bee
June 6th, 2005

Citrus Heights lawyer Dana Cody is no stranger to controversy.

As executive director of the Life Legal Defense Foundation, she's defended Sacramento anti-abortion protesters and helped raise money in a vain attempt to keep Terri Schiavo alive in Florida.

But Cody said she's never before received the kind of threats her telephone voice mail has recorded since she filed a lawsuit challenging California's new stem cell research program.

"One was 'I hope your children get cancer and die,' " the 52-year-old grandmother said. "Several callers threatened to have me disbarred."

Emotions are running high because some of the stem cell program's supporters claim Cody's lawsuit and a proposed constitutional amendment could jeopardize the future of the 6-month-old program.

Both issues will be on the agenda when the stem cell agency's Independent Citizens Oversight Committee meets today in Sacramento, its first gathering in the capital. The panel moved its planned meeting from Irvine to the Sacramento Convention Center so it could lobby lawmakers to defeat Senate Constitutional Amendment 13.

The board is also set to privately discuss Cody's lawsuit, openly consider a controversial new way to finance the agency until the legal battles are over and decide whether to accept a $5 million contribution to keep the agency in business after Nov. 1.

The proposed amendment the panel plans to discuss would require the California Institute for Regenerative Medicine to have a more open grant-making process and tighter conflict-of-interest rules. It would also require state-funded therapies be affordable to low-income Californians.

One of its authors, Sen. Deborah Ortiz, D-Sacramento, contends the measure would ensure more accountability for the $3 billion stem cell research program state voters approved in November.

But oversight committee members have opposed the bill, saying it would ultimately destroy the state's stem cell program.

Robert Klein II, the board's chairman, said the measure is already complicating his attempts to get $100 million the agency needs to stay in business after Nov. 1.

Ortiz said she's trying to address the panel's concerns and will make sure she doesn't interfere with Klein's financing plans.

By Nov. 1, the California Institute for Regenerative Medicine expects to exhaust the $3 million startup loan it received in January. It already has cut its costs by getting free rent and office furniture and persuading other agencies, a law firm and a public relations firm to defer payments until it is on firmer financial footing.

By now, the agency was supposed to have the proceeds from selling some of its $3 billion in bonds. But state officials said Cody's lawsuit made those bonds unmarketable. The stem cell agency can try to eliminate the legal challenge through an expedited process called a "bond validation action."

But Klein is trying to get the money even faster by seeking charities' help. He'll ask the board today to accept a $5 million contribution from audio pioneer Ray Dolby and his wife, Dagmar, to pay for staff and other costs at the institute. Klein also has proposed selling up to $200 million in bond anticipation notes - financial instrumentsrepaid only if the agency can sell its bonds - to health-related charitable organizations. Klein said he hopes the charities would be willing to accept lower interest rates than other investors.

He said he would avoid a conflict of interest by ensuring none of the charitable foundations would subsequently seek stem cell funding from California.

David Llewellyn, another Citrus Heights lawyer who has challenged the stem cell agency's constitutionality, said these notes would also be subject to litigation.

"If they think they have problems now, they will have more problems soon," he said.

While other members of the finance committee have initially supported Klein's proposal, state Finance Director Tom Campbell questioned the need for the notes. He said charitable organizations could donate directly to the stem cell agency, or the institute could wait until the bond validation action is resolved.

"The voters, when they approved the (stem cell) initiative, understood there would be the usual kinds of processes in putting out the bonds," he said.

But Klein isn't willing to wait. The father of a diabetic son, he has insisted that stem cell research move forward to find cures for this and many other diseases.

"We want to provide a clear message that we are going to deliver for the voters of California," he said.

He began hiring staff and signing contracts shortly after he was sworn into office Dec. 17, creating a demand for funding that is outpacing the supply. The institute has 15 employees, with more than half earning more than $100,000 a year.

It has also signed at least 10 contracts for consultants, lawyers and others that will cost as much as $1.1 million, and it has more contracts in the works.

Klein also served as chairman of the stem cell initiative campaign and immediately sought help from those involved in the campaign because, he said, they had more knowledge of the stem cell program.

Eight of the 15 employees worked on the campaign or at a nonprofit advocacy group he created after the election.

Three of the agency's 10 contracts were also with firms that worked for the campaign: the Redgate Communications public relations firm; the Remcho, Johansen and Purcell law firm; and the Nielsen, Merksamer law firm in Sacramento.

Redgate no longer works for the institute. But the Remcho firm continues to provide legal advice, and Nielsen's lawyers are lobbying for the institute.

Among the agency's contracts, Klein could recall only one that was competitively bid: an executive search firm's contract.

While most other state agencies must solicit bids on contracts worth $4,999 or more, Klein said the institute doesn't have to go through the bidding process for its personal-services contracts.

He cited a little-known provision of Proposition 71, the initiative that created the institute, that exempts the stem cell institute from competitive bidding requirements for such contracts.

He said it's based on a University of California exemption that gives health-related agencies the leeway to contract with those with specialized knowledge.

He contended that each of the contracts, including one being negotiated for the Edelman public relations firm, required such specialized knowledge.

For the most part, the oversight committee has left these and other budgetary matters to Klein's discretion.

The board has received information about the budget and the agency's organizational chart, but critics complain that it has never voted on either of these.

"This is an example of irresponsible behavior that would not be tolerated in a government agency that is responsible to the Legislature," said public interest lawyer Charles Halpern.

The issue of accountability to lawmakers and elected officials is at the heart of the lawsuit Cody filed against the stem cell agency.

It contends the stem cell program unconstitutionally gives the power to spend state dollars to a group of private citizens without adequate governmental oversight.

Klein contends the agency has governmental oversight through audits and elected officials serving on its finance committee.

He has focused most of his criticism on the anti-abortion views of the committee that is financing the lawsuit, the Life Legal Defense Fund. Abortion rights foes oppose embryonic stem cell research because it requires the destruction of human embryos.

Shortly after Klein and others attacked the foundation's anti-abortion views, Cody said she began to receive threatening phone calls.

So far, Cody said, she's received just a handful of calls and hasn't felt nervous enough to call the police. But she believes the other side is accomplishing its goals.

"It's a common debating tool," she said. "If you can't debate the facts, you name-call and get people sidetracked."

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