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Three former employees of the California Legislative Analyst’s Office came out in strong opposition against Proposition 38 Thursday, arguing that the ballot measure that seeks to support medical research lacked appropriate provisions for transparency and accountability. Instead, they said, it seemed to “steer public funds” to its billionaire backer’s “philanthropic project” and then “hide its tracks.”
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will ask voters in the November election to allow the state to borrow $8.4 billion to support medical research in immunology and immunotherapy conducted by California research institutes and universities.
Its backers say the measure materialized as a response to the Trump administration’s cuts and freezes to thousands of medical research grants in recent months. The stated goal is to allow immunology research to cure and prevent diseases like cancer and Alzheimer’s to advance unimpeded. Half of the bond proceeds would go to a single nonprofit immunology research institute affiliated with the University of California, while the rest would be distributed as competitive research grants to public or nonprofit universities and institutions.
Earlier this summer, CalMatters reported only one research institute in California appeared to meet the criteria included in the measure for the nonprofit that would be awarded half the bond proceeds. That institute is the California Institute for Immunology and Immunotherapy, an independent medical research organization affiliated with UCLA. Gary Michelson, a billionaire philanthropist and medical inventor, is both the co-founder of that institute and the chief backer of Proposition 38.
‘Hides its tracks’
“Those of you who have worked with the Legislative Analyst’s Office before, you know how reticent our staff is to ever engage in partisan political debates,” said Marianne O’Malley, former managing principal analyst at the LAO, at a virtual news conference organized by the No on Proposition 38 campaign Thursday. “We don’t do that, so you may be wondering why three retired LAO staffers are talking publicly about Proposition 38. The reason is this is no ordinary measure. This measure hijacks the initiative process to steer public funds to a billionaire’s philanthropic project, and then it hides its tracks by waiving all the usual laws to promote governmental transparency.”
O’Malley said it is not uncommon for the government to transfer funds to a nonprofit or private entity to carry out a project. However, such a transfer usually follows an open and competitive bidding process — something Proposition 38 does not seem to do, she said.
Robin Swanson, spokesperson for the Yes on Proposition 38 campaign, said the California Institute for Immunology and Immunotherapy very likely meets the criteria, but the ultimate decision will be taken by the California Department of Public Health.
Swanson said the measure was written to allocate funds to an institute that is “ready to go, competitive and world-class.” She said state bond measures cannot designate funding to a specific nonprofit, but they can establish criteria to ensure the most qualified entities are eligible. First announced in 2024, the CIII is currently under construction and scheduled to open soon.
“We don’t have time to wait. Patients don’t have time to wait for another entity to be created,” Swanson said. “We want an institute that’s able to scale and quickly turn research into life-saving cures.”
For O’Malley, the problem with the measure does not end with the selection of the institute. She said Proposition 38 did not have provisions to promote transparency after the money is disbursed. She pointed to a clause that said the chosen nonprofit institute was not to be deemed a public agency. Therefore, it would be immune from public records and open meeting requirements that ordinarily provide accountability over public funds.
Will it pay for itself?
The backers of Proposition 38 argue that it has strong accountability protections, including independent financial audits, annual reports, a citizens’ oversight committee and a 2% cap on state administrative costs, apart from the general transparency rules that all nonprofits must follow.
They also say the measure protects taxpayers and is designed to pay for itself, since 10% of all proceeds from the licensing of immunotherapies must be returned to California to offset the total costs of the bond. With the global immunotherapy market projected to grow rapidly over the next decade, supporters believe the research program created under Proposition 38 will create “more than enough revenue.” In addition, treatments developed through funded research are to be offered at a 20% discount in California.
However, Dan Carson, also a former LAO analyst, disputed that claim based on California’s experience with stem-cell research bonds passed in 2004 and 2020. In 2004, voters approved Proposition 71, creating the California Institute for Regenerative Medicine and authorizing $3 billion in bond funding for stem cell research. Californians approved an additional $5.5 billion for the institute in 2020.
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During his time at the LAO, Carson said he worked on a team that analyzed Proposition 71 and found that it had failed to deliver on the huge financial windfall it had promised the state.
“The state eventually received only a tiny fraction of the billions of dollars we were promised,” he said. “We got about $16 million in payoff for intellectual property, and we were projected to spend about $6 billion over time to repay the principal and interest on those bonds. So here we go again with Prop. 38. This time, an even bigger $8.4 billion medical research bond issue that will cost us roughly half a billion dollars a year for decades to pay off.”
The research topics eligible for funding under the bond measure include understanding disease formation and factors that contribute to the same. While those research activities are important, Carson said, they do not directly develop new cures that can generate assets to pay off the bond costs. However, the measure does ask that projects with the “greatest potential for yielding the most immediate, accessible and affordable therapies” be prioritized in the competitive research grant selections.
‘Institutional favoritism’
Those selections, for the half of the money that will not go to the single institute, will be made by a council consisting of representatives of the University of California campuses, nonprofit universities and research institutions in consultation with the selected institute. The grants will be awarded to universities and institutions represented on the council.
According to Judy Heiman, former principal analyst at the LAO, that creates a conflict of interest which will result in members of a closed group discussing how to divide up $4.2 billion amongst themselves rather than finding the best uses for the money.
“There’s a legitimate argument about whether California should add billions of dollars in medical research spending to its already substantial debt burden,” Heiman said. “Those who think we shouldn’t will vote against Prop. 38. I would argue that even those who would like to see a major state investment in research should vote no on Prop. 38 and demand an open, transparent and accountable structure. Scientific merit, not institutional favoritism, should drive where the money goes.”
The No on Proposition 38 campaign, led by Stanford University senior scholar Robert Kaplan, has so far not reported any contributions. Kaplan has consistently criticized the practice of funding research focused on specific diseases rather than investing in medical research more broadly, especially when the Trump administration’s cuts affected public health programs across the board.
Support for Prop. 38
The Yes on Proposition 38 campaign has raised more than $27 million so far, of which more than $22 million has come from billionaire philanthropist Gary Michelson and his nonprofit Michelson Center for Public Policy.
The measure has the endorsement of the California Democratic Party and the California Republican Party. It is also supported by a broad coalition of doctors, nurses and patient advocates. This includes the Alzheimer’s Association, ALS Association, the Michael J. Fox Foundation for Parkinson’s Research, American Nurses Association California, Prostate Cancer Foundation and Kidney Cancer Association.
Laurie Adami, a cancer survivor whose life was saved by an immunotherapy clinical trial at UCLA, said Prop. 38 will benefit not just California, but the country and the whole world.
“I lived through struggling to find new treatments for 12 years. I had heard about CAR T-cell therapy in 2012, but I had to wait six years for it to make it into trial because these things are not enough of a priority,” Adami said. “Everybody says the federal government will restore (research funding). I’m sorry, patients can’t wait for that, just like I couldn’t. If my trial hadn’t opened, I was a month away from dying. That’s how sick I was, and this is the case for too many people.”
In November, Prop. 38 will need “yes” votes from a majority of California voters to be approved.
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