Economic Impact Analysis

Proposition 71: California Research and Cures Initiative

Prepared by:
Professor Laurence Baker
Associate Professor, Health Research and Policy
Stanford University

Bruce Deal
Managing Principal
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 per year.

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:

  1. Direct income and sales tax revenues of at least $240 million from the Initiative’s spending on research and research facilities.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Download the Executive Summary of this Report (PDF, 13 pages)

Download the Entire Economic Impact Analysis Report (PDF, 90 pages)

Paid for by YES on 71: Coalition for Stem Cell Research and Cures, #1260661
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