Last November, Californians elected an action hero to fix their broken budget and simultaneously agreed to borrow billions for a massive taxpayer bet on long-shot research into embryonic stem cell therapies. This is clearly not a state for the risk averse. But by rushing in where Congress feared to tread, Californians initiated a policy experiment--or a political end run--with national repercussions. Even as many stem cell biologists revel at their good fortune, some worry that this seismic shift in policy could fragment the field, delay scientific progress and raise unrealistic expectations among the public. The scale of these risks is not yet clear.

What is clear, at least to most scientists in the field, is that the previous system was not working. Under rules laid out by President Bush, researchers cannot use funding from the National Institutes of Health or other federal agencies to experiment on any of the 200-odd lines of human embryonic stem (ES) cells derived since August 2001, when the rules went into effect. Unfortunately, all of the 22 ES cell lines created before that date have been contaminated by nonhuman molecules that invite immunological attack, which greatly limits their medical use.

"There is no question that the NIH attitude and political climate had cast a real chill on this area", says Arnold Kriegstein of the University of California at San Francisco. To work around the federal restrictions, UCSF created a stem cell research programme in 2002 with $5m (2.7m) donated by former Intel chairman Andy Grove and hired Kriegstein to run it. Stanford University set up a similar programme with a $12m anonymous donation, and last year Harvard University joined the fray with its own private stem cell institute.

Despite these efforts, Kriegstein says: "It is difficult to get involved in a field where research you may want to do may be criminalised at some time in the future". (Indeed, in some states, such as Arizona and Pennsylvania, deriving a new stem cell line from human embryos is already a felony.)

"For a young investigator starting a new lab, focusing on embryonic stem cells involves enormous risk", says Melissa Carpenter, who directs stem cell biology at CyThera in San Diego. "If the NIH decides to cut you off, then where will you be? It's an extreme shame. I know a number of good scientists who avoid the area altogether because it is so ethically charged".

As a result of the federal freeze, says Mahendra Rao of the National Institute on Aging, "the US has ceded leadership in this new field to other countries. When we talk about new markers and antibodies to identify stem cells, we point to work done in England. For progress in bioprocessing and scale-up, we look to Israel or Singapore. I now go out of my way to attend scientific meetings in China in order to hear new and unpublished work". Many biologists are frustrated, Rao says, "because the US still could easily be the leader in this kind of science. These cells were discovered here, and we have the best infrastructure for analysing them. We just haven't figured out how to put together the policy to do it".

That is precisely the problem that California aims to solve. California's answer to the president's restrictions is its new Institute for Regenerative Medicine, CIRM. Created by the 59 per cent of voters who favoured Proposition 71 on last November's state ballot, the institute is to be governed by a small staff of about 40 scientists (only three of whom had been hired by the end of April), a handful of administrators, and an oversight committee of 29 academics, businesspeople and medical activists. Its purpose is to spend $300m a year on stem cell research for a decade, an unprecedented growth spurt for a field so nascent and so controversial.

The move set alarms ringing in dean's offices and state legislatures around the country. The governors of Wisconsin and New Jersey quickly launched campaigns to boost stem cell research funding for their state universities. Lawmakers introduced bills legalising human ES cell experiments in biotech-heavy states such as Maryland and Massachusetts.

"When Prop 71 was passed, we became anxious that it would be difficult to attract talented leaders to Connecticut for our own stem cell research programme", says Robert Alpern, dean of the Yale University School of Medicine. He and others have persuaded the governor to support a bill that would condone work with certain human ES cells and would provide $10m a year for stem cell science. So far, Alpern reports, the bill faces no organised opposition but has yet to reach a vote.

"Human ES cells are so new, and few people are trained to use them properly to do good, innovative experiments on how they grow and differentiate. In the US there are just a few dozen people at most", observes Gordon Keller, a stem cell biologist at Mount Sinai School of Medicine in New York City.

The competition for these people is rising fast, Kriegstein says. In addition to international demand, "lots of institutions in California are trying to build or strengthen programmes right now, and they are all looking at the same candidates. That may increase the cost of attracting the best people", he states.

Keller worries that "if you funnel too much money into a field that doesn't yet have enough talent to absorb it, it is going to be wasted". CIRM's interim president, Zach Hall, plans to address that problem by using the institute's initial rounds of grants to train more scientists and build more labs. (NIH restrictions prohibit work on unapproved human cell lines in any lab that runs on federal funds.)

In the first round, "the intent is to encourage institutions to put together coherent training programmes for stem cell science", Hall says. Organisations will compete for 18 awards to be announced in late 2005 that will provide up to $1.25m a year, depending on the size of the training initiative. Although some of the $15m a year will go toward student stipends, Hall notes, the grants cannot pay for PhD programmes, and no school will receive more than one grant.

So when will the California money start flowing to do actual science? Hall cannot answer that question yet, as the agency must first clear several significant obstacles. Six months after its birth, CIRM was still without permanent offices, a permanent president, a slate of experts to review research proposals, or authorisation to issue the bonds from which it will draw its budget.

The bonds were hung up by a pair of lawsuits that challenged the legitimacy of CIRM. In March the California Supreme Court declined to hear the suits but left plaintiffs with the option of bringing them to lower courts. One of the suits, by two pressure groups called People's Advocate and the Life Legal Defense Foundation, landed before a superior court in April. It asserts that the new institute violates a provision in the state constitution. A CIRM official says that the state finance committee might approve bonds to raise money for the institute before the legal dispute is settled.

Even before the money valve opens, scientists could start sending in their requests for research grants. But the institute must seat a panel of 15 stem cell experts from outside California to conduct peer review of the proposals. This is no small feat. Many researchers in the field are being recruited to California and thus have a conflict of interest. Among those who are qualified, few may be willing.

"I've been asked by CIRM to sit on various panels", Keller says. So far he has declined. "We already do a lot of reviewing for NIH, from which we also draw funds. When they ask us to do the same for California but don't allow us to apply for their money well, there are only so many hours in the day".

Ironically, in setting themselves up for financial success, the state's researchers have also set themselves up for possible political failure. By emphasising medical breakthroughs (as Richard Nixon did in the "war on cancer") rather than technical milestones (as Francis Collins did in the Human Genome Project), the campaign for Proposition 71 placed a sizeable bet on an uncertain outcome.

"Science is being put under its own microscope", reflects Fred Gage, a neuroscientist at the Salk Institute. "We are going to be accountable for coming up with major discoveries. There clearly is an expectation that before the end of the decade there will be financial as well as therapeutic benefits to the state".

At stake, too, are precedents of national importance. California's action appears to have spurred support for the Stem Cell Research Enhancement Act, a bill that died in the US Congress last year but was resurrected in February. Republican leaders have promised to put the bill to a vote this summer. Were it to pass and survive an expected presidential veto, it would remove the August 2001 restrictions on federally funded stem cell research, freeing the NIH to compete with private and state initiatives on a level pitch. The law could also be a boon to CIRM, however, because it would allow the agency to spend less on scientific construction and equipment and more on the science itself.

Ultimately, if the California gambit succeeds--whether politically, economically or scientifically--it could become a new model for funding those kinds of research that offend the majority in some parts of America but enthrall most people in other regions. That may not be the most efficient way to do science, but it might yet prove to be the most expedient.