When the oversight board for California's stem cell research agency met in late May, South Korean scientists had just described a breakthrough in so-called therapeutic cloning. David A. Kessler, dean of the University of California at San Francisco School of Medicine, pressed fellow board members for clarification. "So we're not cloning human beings?" he asked. "No, we're taking the cells out at a very, very early level of development and cloning cells," answered neuroscientist Zach W. Hall, the state agency's interim president.

With stem cell research under a microscope, the California Institute for Regenerative Medicine (CIRM) takes great pains to make its intentions clear. The institute, dreamed up by real estate investment banker Robert Klein and approved as Proposition 71 by voters last November, funds embryonic stem cell research that the federal government will not.

Klein wrote the bulk of the California Stem Cell Research and Cures Initiative, donated $2.6 million of his own money and served as its biggest promoter. Last December the state's top elected officers named him chair, responsible for setting up the agency and overseeing a $3-billion pot of research money.

Although 59 percent of California voters approved the idea, actually creating the agency has proved contentious. Months after Klein had intended to announce CIRM's first grants, he finds himself struggling to develop an infrastructure and battling legal and legislative challenges. One powerful early supporter, State Senator Deborah Ortiz, has demanded stricter conflict-of-interest rules and policies to ensure that royalties, revenues and therapies benefit state residents. Advocates of open government and biotech skeptics have contested provisions that were originally intended to shield decision making from the bureaucracy of state government and allow the agency to operate like an entrepreneurial start-up.

Klein refers in frustration to the 29 public meetings he has overseen in 22 weeks--and still, he complains, CIRM faces criticism that it does not operate openly enough. "There's some legitimate anxiety about achieving high standards, and we've had to prove ourselves," Klein says. But he insists, "We've delivered on what we said we would."

The 59-year-old Klein is no stranger to the public process. As a real estate developer and banker, he helped to establish a state agency that provides below-market-rate housing loans and has structured bond financing for private and government bodies. His passion for stem cells took root five years ago at a fund-raiser for the Juvenile Diabetes Research Foundation International. Jeffrey Bluestone of U.C.S.F. spoke about islet cell transplantation from donated organs, and Klein was struck by the potential. The downstream delivery system was in place, he realized--what was missing were the embryonic stem cells that might restore insulin production without triggering an immune response. He contributed generously that night, a year before his own son would be diagnosed with the disease.

Soon the foundation recruited Klein to lobby for renewed funding of the National Institutes of Health's juvenile diabetes program, which was slated to end in 2002. He helped to win $300 million for both adult and juvenile forms. But he decided that legislation was a poor way to support research, a view strengthened in 2003 when a bill sponsored by Ortiz to fund embryonic stem cell studies in California foundered.

To Klein, medical research should be viewed as a part of the public infrastructure, like a dam or a bridge. "You've got to stop 'expensing' research," he says. "You've got to put it in the state constitution and authorize state bonds for it as a capital asset." The approach protects controversial areas of study and allows the state to account for costs over decades instead of every year. With this philosophy, Klein proposed a way for citizens to demand long-term funding. For nine months he worked with scientists, patient advocates and a team of prominent lawyers, and they eventually crafted Proposition 71 for the 2004 ballot.

Besides challenging traditional methods of funding, Klein says, CIRM can also streamline work for scientists by reducing legal and administrative burdens and accelerating the grant review process. He might negotiate a statewide master license on intellectual property, for instance, so that biological material could move between institutions. He would like to approve grants on a three-month timeline instead of the nine months required by the NIH. "I believe we have a mandate from the public to improve the current model," Klein declares. Besides paying for work unlikely to win federal money, CIRM could be more adventuresome than the NIH, Hall adds. As a model, Hall points to the sequencing race in which the private firm Celera challenged the NIH's Human Genome Project.

Scientists outside California hope CIRM will succeed, but they are not as certain that improvements are needed and fear that the "can-do" attitude of entrepreneurialism may not work well for research. Applying a lot of money to a biological problem does not ensure results, cautions Stuart H. Orkin of Children's Hospital Boston. Orkin, who will chair CIRM's grants working group, also notes that federal standards for quality, peer review, conflict of interest, and ethics have been honed over many years at the NIH. Like others, he worries that a patchwork of guidelines is developing as more states pursue this work. New Jersey has dedicated $11.5 million for its own stem cell institute, with another $380 million in the works. Nine other states are considering their own funding efforts or regulatory schemes. And private donations have enabled several institutions to set up research centers independently.

The proliferation may relieve pressure on the Bush administration to loosen its stance on stem cells. But the separate rules for private, state and federal funding confuse both scientists and the public, says Gordon M. Keller, director of the stem cell institute at the Mount Sinai School of Medicine. Whereas many states are happy to finance embryonic stem cells, six states have banned cloning research. "How can it be moral to do research with one [type of funds] but not the other?" he asks.

CIRM's scientific and medical accountability board did adopt proposed national oversight and ethical guidelines laid out by the National Academy of Sciences, but the rules still must go through a 270-day public review. While California stem cell biologists impatiently await standards for consent, oocyte tracking and other processes, some scientists working elsewhere in the nation would like to see a more cautious, deliberate approach. Keller worries about the public's moral qualms as well as what he sees as unrealistically high expectations from stem cell enthusiasts for therapies, new jobs and health care savings.

Others think that the public, particularly patient advocates, may have too much power at CIRM. They make up at least one quarter of the grants review board and a third of the oversight committee. Mildred K. Cho, associate director of the Stanford Center for Biomedical Ethics, wonders about the long-term effect on the culture of science when research is funded by popular vote. She points to the patient-driven factions arising around autism research, in which parent groups attack study results they don't like and raise money to test their own treatment theories. "The public drives not just what disease areas get attention but what the research strategies are," she warns.

Klein believes he has an institute that will be able to lead the way responsibly. "There's a tremendous amount of experience and knowledge on our board," he says. Klein clearly feels all eyes are on him as the institute navigates the scientific, financial, political and ethical shoals of embryonic stem cell research. If California can achieve a major breakthrough, he predicts, "the nation will change forever in this area of science."