Proposition 71: California Research and Cures Initiative
Professor Laurence Baker
Associate Professor, Health Research and Policy
Analysis Group, Inc.
September 14, 2004
This study provides an economic analysis of the costs and benefits
associated with Proposition 71, the Stem Cell Research and Cures
Initiative. The study was conducted by Dr. Laurence Baker, Associate
Professor of Health Research and Policy and Chief of Health Services
Research at the Stanford University School of Medicine, in conjunction
with Analysis Group, Inc., a national economic and financial research
firm with offices in Los Angeles, San Francisco, Menlo Park and
major cities throughout the United States. Bruce Deal, Managing
Principal of Analysis Group, co-authored the study.
Proposition 71 authorizes a total of nearly $3 billion in tax-free,
general obligation state bonds to support stem cell research at
California hospitals, medical schools, universities and other
research institutions over 10 years. The Initiative defers principal
and interest payments on the bond during the first five years,
from 2005 through 2009. Bond payments of about $200 million per
year would begin in 2010 and continue until 2039, creating a bond
payback period of 30 years. The total payback cost with interest
on the bonds is estimated by the authors at about $5.4 billion.
The investments in stem cell research and research facilities
made possible by Proposition 71 are expected to generate revenues
for the State of California from new income and sales taxes. Proposition
71 could also produce new royalty revenues and tax revenues resulting
from expanding economic activity in the biotechnology industry.
By leading to new treatments for just a few of the more than 70
diseases and conditions that scientists believe could be treated
or cured with stem cells, Proposition 71 has the further potential
to provide significant reductions in California’s health
care spending costs, which now amount to more than $110 billion
Key Conclusions of the Economic Analysis
of Proposition 71
In even the modest scenarios examined,
Proposition 71 provides total state revenues and health care cost
savings of between $6.4 billion and $12.6 billion during the payback
period, generating a 120% to 236% return on the investment made
in the research.
Thus, Proposition 71 is capable of paying for itself during
the payback period alone with the possibility of continuing to
generate billions of dollars in revenues and savings for the State
of California for decades after that.
Specific revenues and savings that are modeled include:
- Direct income and sales tax revenues of at least $240
million from the Initiative’s spending on research
and research facilities.
- Additional income and sales tax revenues of from
$2.2 billion to $4.4 billion if Proposition 71 could
bring about even a 2.5% to 5% increase in private investments
and research activity in the California biotechnology industry
by making California a world leader in stem cell research.
- Direct health care cost savings to the State government
of at least $3.4 billion to $6.9 billion, based on
modest assumptions that the research would reduce state spending
by at least 1% to 2% for the care and treatment of patients
suffering from six medical conditions that scientists believe
could benefit from the development of new stem cell therapies,
including stroke, heart attack (acute myocardial infarction),
insulin dependent diabetes, Parkinson’s disease, spinal
cord injury, and Alzheimer’s disease.
- Additional billions in health care costs savings
for California businesses, citizens and other payers of health
care costs. California’s total health care spending
costs now exceed $110 billion per year, including direct state
government costs, costs funded by federal programs, insurance
companies, employers, and individual citizens. In addition to
providing billions in savings to the State government, new stem
cell therapies could reduce costs to other health care cost
payers by $9.2 to $18.4 billion based on 1% to 2% cost savings
for the six conditions considered.
- State royalty revenues of from $537 million to $1.1
billion, resulting from the provisions in Proposition
71 that give the state an opportunity to share in royalties
resulting from research funded by the Initiative.
If Proposition 71 leads to major advances
in health care treatments, overall economic benefits to the State
could be more than 7 times the cost of the Initiative.
Given the promise of stem cell research, cost reductions of
10% or more in the six conditions considered are possible through
significant improvements in therapies. Savings of 10% on health
care costs would lead to additional saving to Californians of
$92 billion and increase the total economic benefits to the State
of Proposition 71 to 750% of cost.
Proposition 71 will create thousands
of new jobs in California.
Direct spending from the Initiative will generate thousands of
additional jobs in California. Additional growth in the biotechnology
industry could generate additional jobs. In total, between 5,000
and 22,000 new jobs on average per year could be created; the
total number of job-years (one job for one year = one job-year)
ranges from 360,000 to 673,000.
This analysis shows significant potential economic benefits of
Proposition 71. However, it should be noted that the primary social
benefit from Proposition 71 is its potential to improve the health
and save the lives of millions of Californians who now suffer
– or will eventually suffer – from diseases and injuries
that could be treated or cured with new stem cell therapies whose
development could be enabled or accelerated by Proposition 71.
This benefit cannot readily be quantified by economic analysis,
and has not been included in the study.
the Executive Summary of this Report (PDF, 13 pages)
the Entire Economic Impact Analysis Report (PDF, 90 pages)