July 20 (Bloomberg) -- California Governor Arnold Schwarzenegger extended a $150 million loan to the state's financing agency for stem-cell research, one day after President George W. Bush vetoed legislation expanding federal funding for such studies.

The move by Schwarzenegger, a Republican running for re- election, was a boost to a voter-backed program whose funding has been hobbled by lawsuits. California has been unable to sell $3 billion of bonds approved by voters for disease-fighting research with embryonic cells because of the legal battles.

``We can no longer afford to wait to fund this important research,'' Schwarzenegger said in a letter to his finance director today that took note of Bush's veto. The letter was released to reporters.

Voters in 2004 approved an initiative that aimed to turn California into the largest U.S. source of funding for research with stem cells. The ballot measure was a response to Bush's decision in 2001 to limit research that has drawn fire from some religious groups because frozen embryos are destroyed once the cells are taken.

Schwarzenegger's support for stem-cell research since 2004 has distanced him from fellow Republican Bush, whose approval rating among Californians is the lowest given to any president since shortly before former President Richard Nixon resigned in 1974. Schwarzenegger is the only Republican who has been elected to statewide office. Democrats control the Legislature.

Illinois Moves Too

Separately, Illinois Governor Rod Blagojevich, a Democrat who is also running for re-election, said he will direct another $5 million to his state's stem-cell research endeavors. In April, Illinois made $10 million of grants to scientists working in the field.

``President Bush's action yesterday was a clear indication that stem cell research will get no support from Washington as long as he occupies the White House,'' Blagojevich said in a statement.

Bush used the first veto of his presidency yesterday to kill legislation that would have permitted federal funding of research on new embryonic stem cells. The House of Representatives failed to override it.

While other states, including New Jersey and Wisconsin have also seized on the issue, California has established the biggest program. The 2004 initiative, approved by 59 percent of voters, allowed the newly created California Institute for Regenerative Medicine to sell as much as $350 million of bonds a year for stem-cell research.

Abortion Foes Fight

Little of the money has been raised. People's Advocate, a taxpayer group, and the California Family Bioethics Council, an anti-abortion group, sued the institute, saying it couldn't spend public money because it wasn't under direct state control and its membership rules violated conflict-of-interest laws. In April, a state judge dismissed the challenges. The decision was appealed.

The institute president, neuroscientist Zach Hall, praised a decision he said will be a boon to state researchers starved for research money. The loan exceeds the $38 million the U.S. is providing in 2006 for research on embryonic stem cells.

``At one stroke, this will energize stem-cell research in California,'' he said during a conference call with reporters.

Relying on Charity

The institute has so far relied on $14 million of notes it has sold to philanthropists and charities that it anticipates paying back once it can sell bonds to investors, and planned to sell as much as $36 million more. It has been authorized to raise as much as $200 million with bond sales. The loan authorized by Schwarzenegger will fill that gap.

Because stem cells have the potential to turn into any type of cell, scientists say they may provide remedies for degenerative diseases such as Parkinson's and other maladies such as diabetes should they be successfully manipulated to replace cells that are malfunctioning.

Bush's 2001 decision limited U.S. funding for embryonic stem cell research to ``more than 60'' existing stem cell lines. Scientists have reported that only 22 of those batches are usable.

To contact the reporters on this story: William Selway in San Francisco at wselway@bloomberg.net;

Last Updated: July 20, 2006 18:11 EDT