California’s stem cell program — big money, but lackluster oversight

A Liquid Nitrogen bank containing suspended stem cells. (Photo: Elena Pavlovich)

California’s multibillion-dollar, cell and gene therapy program has a special spot in the pantheon of the hundreds of government departments in the Golden State.

It is immune from the normal oversight of the governor and state lawmakers. Its cash — now set at $5.5 billion over the next decade — flows freely and directly to the stem cell agency with no inconvenient meddling by elected officials.

The CFAOC scheduled its annual review of CIRM for three weeks later but failed to put the audit on the agenda.

However, one obscure entity does have a touch of oversight involving the financial practices of the California Institute for Regenerative Medicine (CIRM), as the stem cell agency is legally known. That entity is the Citizens Financial Accountability and Oversight Committee (CFAOC), which enjoys its special role as the result of the ballot initiative that created CIRM.

The CFAOC is also an entity that has just backed away from a commitment last fall to examine some of CIRM’s financial weaknesses, ranging from dealing with skimpy royalties to the need for better analysis of business and scientific data.

The issues were identified in a triennial  “performance audit” that said that CIRM could do better in 11 different areas. The performance audit is paid for by CIRM itself and is required by state law. The most recent audit cost $230,000 and covered the 2019-20 fiscal year.

Sixteen months after the end of that fiscal year, the audit was presented briefly at the Oct. 19, 2021, CIRM board meeting. There was virtually no board discussion. The report did not come up until all other business was finished. The CFAOC scheduled its annual review of CIRM for three weeks later but failed to put the audit on the agenda.

The performance audit made 11 recommendations, at least seven of which involve financial practices and performance.

After the California Stem Cell Report wrote on Nov. 4 about the deficiencyState Controller Betty Yee, an elected official and the chair of the CFAOC,  deferred any discussion of the performance report. At the beginning of the Nov. 10 hearing, she said, “It is the intent of this oversight committee that it have a meeting in the spring to see how (the audit and CIRM’s response)  will inform the next cycle of our financial oversight work.”

In response to a query last week about the status of Yee’s six-month-old commitment, a spokeswoman for the controller said that “because it is beyond the scope of CFAOC responsibilities laid out in statute to review the performance audit, that discussion will not be its own meeting, but instead will be an informational item at the scheduled November meeting.”

State law, however, requires the CFAOC to review the “financial practices” of CIRM and says that the CFAOC “shall provide recommendations on the institute’s financial practices and performance.” Timeliness is obviously important in such responsibilities.

The performance audit made 11 recommendations, at least seven of which involve financial practices and performance, including assuring that royalties are collected. Back in 2004, backers of the initiative that created CIRM commissioned a study that said royalties could exceed $1 billion. It has collected $16.2 million.

Art Torres told CIRM directors that Controller Betty Yee is “a very close friend and will be very helpful to us and very supportive of CIRM.”

In recent years, the CFAOC has been kinder to CIRM than it was in the days when John Chiang, a Democrat, was state controller. In 2009 on Chiang’s recommendation, the CFAOC formally endorsed the findings of an independent study that found that CIRM’s  “governance structure is not adequate to protect taxpayers’ interests or serve its own ambitious goals.”

Only weeks after Yee, also a Democrat, took office in 2015, however, the situation seemed to be changing. At least that appeared to be the word from the vice-chair of the CIRM board, Art Torres, who served in the state legislature for 20 years and later headed the state Democratic Party. Torres told CIRM directors that Yee is “a very close friend and will be very helpful to us and very supportive of CIRM. And her new health policy director, Alan Lofaso, who I’ve known for many years, as well.”

The CFAOC was created by the same 2004 ballot initiative that created CIRM and exempted it from gubernatorial and legislative oversight. With two exceptions, the CFAOC has met only once a year for routine presentations by CIRM officials. The CFAOC is required by law to meet annually but can meet more frequently if it chooses to do so. In 2018 when funds were starting to run out at the agency, Yee did not call an annual meeting. (The other exception was in 2005 when CIRM was just struggling to find office space.)

Financial matters are coming up again this week at CIRM. On Tuesday, the CIRM directors’ Finance Subcommittee will consider CIRM’s proposed operational budget for 2022-23. In the absence of action by Yee, members of the CIRM board, which is called the Independent Citizens Oversight Committee, may inquire about the status of the agency’s response on the 2019-20 performance audit recommendations and whether another performance audit is due in the next fiscal year.

Editor’s Note: David Jensen is a retired newsman and has followed the agency since 2005 on his newsletter, the California Stem Cell Report.

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