This report has been updated from the original edition, published July 6, to correct the identity of the head of the University of California system, President Mark Yudof
California's budget stalemate will delay until next year a key lawmaker's effort to change how the state's stem cell agency is governed to reflect recommendations made by an independent state oversight commission in a just-released study.
The delay also sets the stage for a showdown with the California Institute for Regenerative Medicine and the state's most vocal patient advocate — both of whom oppose the findings by the Milton Marks "Little Hoover" Commission on California State Government Organization and Economy.
The chair of California's state Senate Health Committee, Elaine Alquist (D-San Jose), said through a spokesman last week she will wait until 2010 to introduce legislation to restructure the governance and some operations of CIRM.
The delay reflects the expectation that she and chairs of other state committees will be too busy this year scrambling to plug a $27 billion shortfall in the state budget, still being hammered out for the fiscal year that began on Wednesday, Alquist spokesman Russell Lopez told BioRegion News.
"That's what the Senator has been really concentrating on," Lopez said Wednesday. "There's nothing going on this year" other than the budget mess, he said. "Our efforts will probably be continued next year" — a circumstance made possible by the fact that California's legislative session runs two years, and bills introduced this year can still be taken up next year.
It has not been decided, he said, which of Little Hoover's recommendations will be incorporated in her bill.
Alquist will propose the changes to CIRM governance as an amended version of Senate Bill 343, a measure she introduced on Feb. 25. The bill requires recipients of CIRM grants to submit to the agency a plan for allowing uninsured state residents access to drugs funded by the agency, and allowing the state and local governments to sell those drugs at any of three benchmark prices in the California Discount Prescription Drug Program, unless waived from the rule by CIRM's governing board, the Independent Citizens Oversight Committee.
The original bill is similar to last year's Senate Bill 1565, introduced by then-state Sen. Sheila Kuehl (D-Santa Monica) with support by state Sen. George Runner (R-Lancaster). That bill, which was vetoed by Gov. Arnold Schwarzenegger [BRN, Sept. 29, 2008], also requested that Little Hoover examine the governance of CIRM and ICOC with an eye to preventing conflicts of interest — a study the commission agreed to conduct last fall, and made public on June 26.
In that study, Stem Cell Research: Strengthening Governance to Further the Voters' Mandate, the Little Hoover Commission recommended a series of changes to the operation of CIRM and ICOC. Those changes include shrinking the ICOC board from the current 29 members to 15; reducing the use of outside consultants, realigning the powers of ICOC Chairman Robert Klein and CIRM President Alan Trounson; restructuring the ICOC to strengthen its oversight of CIRM’s day-to-day operations; removing caps on how many staffers the agency can employ and how many scientists it can retain for peer review; and finalizing a transition plan that will address CIRM’s future once its $3 billion in state funds runs out in 2014.
"The governance structure has created an environment that initially embrac[ed] the diversity of viewpoints on its board, but now protects the founding leaders, dilutes accountability and limits turnover and, ironically, rejuvenation," Little Hoover concluded in its 70-page study. "The Commission is cognizant of the disruption that change can bring, but it is confident that a reasonable transition plan can be implemented."
The report also noted that since Klein has said he will step down as chair in 2010, "transition also is inevitable."
And while several people testified before Little Hoover that large boards often force more conscientious board members to pick up the work load not assumed by less-proactive members, the report concluded, "in practice, this does not appear to be a problem for the ICOC members, who display a high level of engagement at board meetings."
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Little Hoover maintains in its report that the recommendations were designed to bypass the need for a second ballot question to revise the stem cell agency — created by state voters when they approved Proposition 71 in 2004 — and sustained when California's top court turned back an effort to overturn the proposition on constitutional and economic grounds. [BRN, May 29, 2007].
In an interview Stuart Drown, the commission's executive director, told BRN: "We don’t believe that the [changes] we're talking about would require a [state] constitutional change" through another proposition.
According to the commission, its recommendations can either be set by ICOC as policy or enacted into law by amending the state Health and Safety Code. But the commission also acknowledged that efforts to change the code could touch off a lawsuit that would likely have to be settled in court.
"While the commission understands there is a potential controversy here, which could lead to litigation, this is a sufficiently open question that persuades the commission to recommend the following governance changes in the interest of furthering the purpose of Proposition 71 and improving the prospects for long-term success of the agency’s mission," the report concluded. "In improving efficiency and transparency at CIRM, the commission believes that the recommendations will further the voters’ mandate."
A CIRM spokesman disputed Little Hoover's contention that no second proposition would be needed to make the changes recommended in the report.
Don Gibbons told BRN his agency believes the ICOC cannot change the size of its board or reduce the term lengths of its members without voters approving the change. A ballot question would also be needed, Gibbons said, to enact three other recommendations of the Little Hoover Commission: changing the authority for appointing new board members, eliminating from the job description of ICOC chair Klein his day-to-day financial responsibility for the agency, and changing who can appoint Klein and CIRM's vice chairs to the ICOC from Schwarzenegger and other statewide elected officials.
"We've got a lot of momentum. Don't make us lose six months to a year in a reorganization, particularly if we may only have five or six years left," Gibbons told BRN. "Why would we waste that time? During any reorganization, things tend to freeze. People don’t want to make decisions."
He cited the 2007 reorganization of California's Department of Public Health, which at least one local news report blamed for a delay in payments to area shelters for victims of domestic violence.
"We should be more nimble than that, but we will lose time based on periods when there's too much uncertainty over who's in charge, when, which board members are real," Gibbons added.
He said CIRM based its opinion on legal research by two law firms, one Republican and one Democratic. He said any court challenge to writing Little Hoover’s recommendations into state law would not come from the agency, but most likely from a board member set to lose his or her seat, or patient advocates who have defended CIRM and the ICOC, saying their value in helping research institutions leverage private donations outweighed any concerns over conflicts of interest raised by Little Hoover.
Don C. Reed, co-chair of Californians for Cures, and director of policy outreach for Americans for Cures Foundation, told BRN on Wednesday he and other patient advocates intend to stop any restructuring of CIRM along the lines suggested by the Little Hoover Commission, preferably at the legislative level, but in the courts if necessary. In an interview, Reed said the Little Hoover recommendations would cause damage to California's stem cell effort that he said "could be devastating."
"The subject is so difficult, so fraught with complications, that it requires tremendously dedicated, intelligent experts to gather all the information, and to make it work," said Reed, a retired schoolteacher who spearheaded the passage of California’s Roman Reed Spinal Cord Injury Research Act of 1999. The law is named for his son, who is paralyzed. "That's what we have right now."
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Reed said Little Hoover members showed some accommodation to the concerns of patient advocates like himself when they revised their recommendation for bringing new people onto the ICOC board. While the commission initially sought to end the service of all existing members by two years, it later opted to let existing board members serve out the remainders of their terms before leaving.
"Even they came to realize what an incredible mistake [the two-year plan] would be, so they removed that," Reed said.
Nonetheless, according to Gibbons, "it's still going to be disruptive" to the operation of the ICOC board.
Under the Little Hoover recommendations, 11 of the new board's 15 members would be appointed by Schwarzenegger and confirmed by the state Senate. Two members would be named by the state legislature, the other two by UC President Mark Yudof.
Giving Schwarzenegger a near three-fourths majority over board hires, Reed said, "is totally contrary to the will of the people. We wanted something that was as non-political and pro-science as possible. If any governor has the power to appoint the vast majority [of ICOC members], the potential for politicization is obvious."
While acknowledging that Schwarzenegger has been an ally of patient advocates, Reed expressed concern that giving governors in general the power to fill most ICOC seats could allow a successor to tilt the agency in favor of limits on human embryonic stem-cell research, such as blocking the creation of new lines, even though they are opposed by most researchers and patient advocates.
"If a person is chosen who is anti-embryonic stem cell research, that would go completely against the whole purpose of the program," Reed said.
Drown said Reed's concern about the effect of CIRM reforms on the agency's future direction should be addressed by the fact that patient advocates will continue to constitute the largest faction of members on the ICOC even if the board is reformed — though the number of advocates would drop by half, to five members.
Those five patient advocates would not be required to be focused on any specific disease; each of today's 10 advocates on the ICOC board represents patients with one of the following diseases: Alzheimer's disease, spinal cord injury, MS/ALS, type I and II diabetes, cancer, Parkinson's disease, heart disease, HIV/AIDS, and mental health.
The revised board's next-largest contingent of members would be four "independent" individuals with no ties to institutions receiving funding from CIRM. Of the four, two would be businesspeople and the other two would be independent scientists. The current ICOC has no seats for independent directors.
The remainder of the reformed ICOC's membership would include two representatives from the University of California campus with a medical school, one representative from a university outside the UC system, two executive officers of "a commercial life-science entity," and one leader of a California research institution.
The reformed board would cut the percentages of members from sectors of the life-sciences industry who are most prone to conflicts of interest between the needs of their institutions and their duties on the ICOC board: The number of members from universities would fall from nine to three; the number of commercial life-sci members would be fall by half, to two; and the number of research institute members would fall by half, to one.
"The Commission is concerned that the lack of disinterested members on the ICOC weakens the board’s ability to make sound decisions and limits the likelihood that there will be substantial debate and dissent among board members about key funding and policy decisions. Such a dynamic also erodes confidence that the board is capable of making broader strategic decisions that go beyond awarding research dollars," the report concluded.
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The report contrasted the frequent recusals by ICOC members on issues up for board vote with testimony by Michael Klausner, a Stanford Law School professor, that such recusals should be rare.
Reed disagreed, arguing that Little Hoover's focus on preventing conflicts was overblown: "Recusing means this might be a conflict of interest, so I'm not going to get involved. That's exactly what you'd think they'd want. You want transparency. You want purity."
The commission also argued that a smaller board would address what it called the challenge to ICOC operations posed by its 65-percent quorum — though Reed noted that state Sen. Dean Flores (D-Shafter) contended during a Little Hoover hearing that ICOC's current size at 29 members was no less workable than the 26-member University of California system board.
Today's ICOC consists of the 10 patient advocates, one of whom was designated in March as bylaws vice chair — Duane Roth, president and CEO of Connect, a San Diego nonprofit organization that assists startup technology companies — as well as Klein, statutory vice chairman Art Torres, and:
• Five executive officers from a UC campus with a medical school, chosen by UC's chancellors;
• Four executive officers from other California universities;
• Four executive officers from California research institutes; and
• Four executive officers of commercial life science entities.
The members from non-UC universities, research institutes, and bio businesses are now appointed by all of California's top statewide elected officials — Schwarzenegger, Lt. Gov. John Garamendi, Treasurer Bill Lockyer, and Controller John Chiang.
Each official names two patient advocates. Schwarzenegger fills the seats for advocates of Alzheimer's disease and spinal cord injury; Garamendi, MS/ALS and type II diabetes; Chiang, cancer and Parkinson's disease; and Lockyer, heart disease and type I diabetes. The state Senate Rules Committee appoints the ICOC's HIV/AIDS patient advocate, while Assembly Speaker Karen Bass (D-Los Angeles) names the mental health patient advocate.
The terms of all ICOC board members should be reduced to four years, Little Hoover recommended. At present, all patient advocates and UC executive officers serve eight-year terms, while all other board members join Klein and Torres in serving six-year terms. "The lengths of their terms — six to eight years — also weakens public accountability," according to the report.
Asked why Little Hoover did not recommend the most common length of board terms — three years, according to the 2007 Nonprofit Governance Index survey published by the nonprofit consultancy BoardSource — Drown replied: "[Stem cell science] is a complicated subject area. You want your board members to have a chance to gain the expertise. And there's a learning curve. And then you want to take advantage of them having that expertise while they're in the seat. We thought four years would be an appropriate time period."
The commission also recommended the ICOC and/or the legislature "clarify” Trounson’s power by designating him the officer with top day-to-day administrative responsibility for CIRM, rename ICOC the agency’s “board of directors,” and designate the board as overseeing all matters involving the stem-cell agency — the traditional division of power within nonprofit entities.
That’s a change from the present balance of power, in which Trounson and Klein are co-CEOs, with Trounson prevailing on science issues while Klein and the ICOC deciding financial and even some administrative issues. That division is written into Proposition 71, which requires the ICOC chair to have bond experience — a qualification Little Hoover cited as an example of CIRM's personality-driven leadership.
"An agency governance structure that features key positions built around specific individuals does not serve the best interests of the mission of the agency or the state of California, however well-qualified the individuals may be. Such a situation distorts accountability and succession planning and could, in the event of an abrupt departure of the individual, leave the agency leaderless for an extended period," the report stated.
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That power structure became an issue at a July 1 ICOC meeting when some board members opposed a suggestion from Klein that the board vote on approving Trounson’s decision to hire two new support staffers, two weeks after the members complained that CIRM did not provide enough administrative support to the ICOC. Trounson hired — with no board vote — administrative assistants to Torres and Melissa King, the board's executive director.
"The highly scientific nature of the bulk of our day-to-day business requires someone who is very much a scientist directing that. And because our financing often involves very arcane machinations with bond issuance, you need a real expert on that. And that's the reason why that was pulled out of the president's day-to-day duties," Gibbons told BRN.
Gibbons said the ICOC has already begun implementing three recommendations in the Little Hoover report — adding to its minutes information on the votes and recusals of individual board members, developing a succession plan for current CIRM leaders, and developing a plan to transition the agency so it can continue when its $3 billion in state bond funds ends in 2014.
"We might find a way to extend the life of the organization too, and that would be great. But it's not a given," Gibbons said.
Strategic Plan: To ICOC in August
Transitioning past the current bond is a key purpose of a strategic plan being developed since late last year by CIRM and ICOC [BRN, Dec. 15, 2008]. "There's still some internal discussion on it, so we decided not to take it to the board in June. We'll take it to the board now in August," Gibbons said.
Four other recommendations, Gibbons said, will soon be considered by the ICOC board:
• Modify the "triage," or internal pre-application, process by which CIRM tries to ease the workload on the peer-review panel in light of the 15-person cap on outside peer reviewers.
• Identify successful and unsuccessful applicants for CIRM grants; only winners are now identified.
• Poll peer reviewers on their willingness to participate in the grant review process if their financial disclosure statements are made public.
• Adopt provisions to removal board members for cause.
"We're going to put those to the board to decide," Gibbons said.
He added that CIRM agrees with Little Hoover that legislation alone would be needed to implement another three commission recommendations — eliminating the 50-person employee cap, eliminating the 15-scientist cap on any one grant working group review cycle, and requiring the Citizens Financial Accountability Oversight Committee, or CFAOC, to conduct performance reviews of CIRM in addition to its financial audits of the stem cell agency.
Little Hoover also recommended lifting two personnel caps: the current 50-person limit on full-time staffers, and 15-person maximum on scientific peer reviewers allowed to examine research grant applications.
"We're concerned that they're trying to do this triage internally. And if they say they have to do it internally because there's this cap on outside reviewers, we want to remove that as a barrier. It's more important to have all of these applications reviewed by outside reviewers," Drown said.
The personnel limit allows CIRM to comply with another mandate of Proposition 71 — namely that no more than 6 percent of CIRM's budget go toward administrative expenses. Drown rejected the argument that lifting the cap on personnel would result in uncontrolled spending, noting that Little Hoover recommended that CIRM and ICOC contain costs by limiting the use of outside consultants.
Neither the report nor Drown quantified how much money the agency could save, though the study cited one example where savings could be achieved: Replacing an outside attorney with one in-house to swear in new ICOC board members and advise them of potential conflicts of interest during funding discussions.
"We're not delimiting them from paying more money," Drown told BRN. "We're just saying that if they're still going to work under their 6 percent cap, then they should have the freedom to hire — that the 50-person cap is artificial. It's a limit without meaning if they're going to stay under the budget cap. The management of the institution should have the flexibility to hire as many people as they need to under that budget cap to get the job done, rather than having to go outside to hire contractors to do their work."
Reed told BRN that if the cap on staffing is to be removed, so should the cap on CIRM's budget.
"If you increase the number of people without increasing the amount of dollars, somebody is going to be taking a wage cut," Reed said. "The [personnel] cap may possibly have been too low. Maybe it would be better with 10 percent, but I don’t know. I do know that there's no question that they should have a few more people there. The people they have work extremely hard, and it would be better if there were a few more people."