BURLINGAME -- A state appeals court upheld California's $3 billion stem cell agency Monday against attacks by abortion foes and anti-tax advocates who claimed the agency's managers had conflicts of interest.

The 1st District Court of Appeal upheld a decision by a lower court judge who last year ruled in favor of the California Institute for Regenerative Medicine, which was created when Proposition 71 was passed by 59 percent of the electorate in 2004.

The court heard oral arguments on Feb. 14 and had 90 days to rule.

"Once again, the judiciary has upheld the constitutionality of California's innovative stem cell research project in its entirety, without equivocation, and with absolutely no room for further argument," said Robert Klein, who chairs the committee that oversees the institute.

The California Family Bioethics Council argued that the stem cell agency is rife with conflicts of interest, saying officials from three university systems who sit on the board overseeing the agency could benefit because their various schools are applying for millions in research funds from the agency.

As written, Proposition 71 dictates that those officials must recuse themselves when the board is considering an application from their schools.

"Proposition 71 suffers from no constitutional or other legal infirmity," the court ruled, 3-0.

The appeals court was skeptical of claims that Proposition 71 violated the state's "single subject" law when putting initiatives on the ballot. Opponents said the proposition allows for more than just stem cell funding.

The appeals court, among other things, found that the ballot measure's general language appeared to ensure that all stem cell research funding wouldn't be hindered if it overlapped with other kinds of medical research.

The court also balked at arguments that the agency isn't under the "exclusive control and management" of the state.

The People's Advocate and National Tax Limitation Foundation argued that since the University of California officials on the agency's oversight board weren't appointed by elected officials -- they were appointed by their chancellors -- they aren't public officials and had no authority to spend state money. But the court noted that chancellors of those schools are appointed by regents, who are appointed by the governor.

"It's so obvious that there are conflicts of interest between those who are responsible for distributing funding and those who receive the funds," said Robert Tyler, an attorney for Advocates of Faith and Freedom who helped the plaintiffs craft the lawsuit.

Tyler said he expected the case to be appealed to the California Supreme Court.

Dana Cody, who represented anti-abortion group Life Legal Foundation in the lawsuit agreed that an appeal to the state's high court likely will be made. But she said she still had not read the decision late Monday and needed to consult with her client.

Klein said the he's confident the Supreme Court would validate the latest ruling if an appeal were made.

Until the lawsuits are resolved, the agency can't borrow any money from Wall Street bond dealers. The state has loaned the agency $150 million, and philanthropic organizations have loaned it another $45 million to fund research.

Gov. Arnold Schwarzenegger, who authorized the state loan last year on the same day President Bush vetoed federal legislation supporting the research, hailed Monday's ruling and has said he would continue to authorize more loans as necessary.

"Stem cell research holds our best promise to find a cure for debilitating illnesses, like Parkinson's disease and diabetes," Schwarzenegger said.

On Feb. 16, the agency doled out nearly $45 million in research grants to about 20 state universities and nonprofit research laboratories, far exceeding the federal government's annual outlays for the controversial work.

In issuing the first significant research grants in its two-year history, the agency became the nation's biggest financial backer of human embryonic stem cell research.

Stanford University researchers were the biggest winners when they landed 12 grants worth a combined $8 million, including the first publicly financed human embryo cloning project. Other schools receiving grants included eight campuses of the University of California and the University of Southern California.

The Salk Institute in San Diego and the J. David Gladstone Institute in San Francisco were among the 10 nonprofit research centers receiving grants.

Thirty scientists who are new to the field and 27 more with stem cell research experience all received grants.

Human embryonic stem cells are created in the first days after conception and give rise to all the organs and tissues in the human body. Scientists hope they can someday use stem cells to replace diseased tissue, but many social conservatives, including President Bush, oppose the work because human embryos are destroyed during research.

Proposition 71 came as a reaction to Bush administration's decision to cap federal funding for stem cell research at about $25 million annually, and impose strict research guidelines that scientists say limit advances.

The case is California Family Bioethics Council v. California Institute for Regenerative Medicine, A114195.