Debate on S. Africa Stalls State Budget Compromise

After resolving most major spending disputes, legislative budget negotiators got hung up Friday over the issue of whether the state should allow public pension fund investments in firms that do business in South Africa.

“Go back to the drawing board,” Sen. Alfred E. Alquist (D-San Jose), chairman of the two-house conference committee, told fellow budget writers after a heated exchange over what, if anything, the state can do about the issue of apartheid in South Africa.

“My personal opinion is we can’t solve all of the problems of the world here in this California Legislature,” Alquist said. “I don’t think any reference to South Africa has any business in this budget bill.”

For a week, the six Republican and Democratic budget negotiators have been approaching, then backing away from three budget provisions aimed at companies that do business in South Africa.

The most extreme would forbid any further transfers of state money to public employee retirement systems, including the University of California’s retirement system, until the retirement systems present plans to divest themselves of investments in companies that do business in South Africa.

A controversial UC study recently concluded that the university alone could lose $100 million if forced to sell all its South African-related investments.

The most heated exchange developed between Sen. John Seymour, a Republican who represents a major portion of Orange County, and Assemblywoman Maxine Waters, a Democrat from South-Central Los Angeles.

“There’s principles involved,” said Seymour, arguing that the change in investment policy could be harmful to pensioners while posing no direct threat to South Africa.

“Yes, there are,” retorted Waters, “and there are people who are dying and suffering in South Africa and apartheid is unconscionable.”

Lawmakers challenged each other on whether the change in policy would cost the pension funds money. Waters and Assemblyman John Vasconcellos (D-San Jose), who said he is morally opposed to using public dollars to invest in companies profiting from South African apartheid policies, both challenged the UC study. But other committee members indicated that they agreed with the study.

‘No Way Out of It’

“There isn’t any question in anybody’s mind but that disposing of all these investments will cost the university money. Period. There is no way out of it,” Alquist said.

The other two apartheid provisions would prohibit UC from depositing state construction funds in any bank or financial institution that invests in companies doing business in South Africa, and restrict UC from contracting with builders or suppliers that do business with the African nation.

The weekend recess came as lawmakers all but wrapped up most other major issues in the $35-billion-plus spending program for the fiscal year starting July 1. Lawmakers are expected to complete their work on the budget early next week. They have until June 15 to send it to the governor.

The lawmakers said their budget, after cuts of several hundred million dollars Thursday, contains a reserve that is very close to the $1 billion “rainy day” fund requested by Gov. George Deukmejian for fiscal emergencies.

Exceeds Governor’s Budget

As it stands, the legislative version of the budget contains about $600 million more in spending than the governor’s budget. The additional spending, in effect, is financed from a portion of the $900-million revenue windfall that developed from unexpectedly high personal income tax returns in April.

But it also may invite gubernatorial vetoes because Deukmejian had wanted to spend a major portion of the windfall revenues on what he described as “moral and legal” obligations of the state.

These obligations include $214 million the governor said is owed to local school districts for the costs of desegregation programs, another $70 million to replenish special funds raided during the state fiscal crisis, and a $24-million shortage in the unemployment insurance fund.

The budget writers rejected the governor’s proposals.

After substantial debate, the committee agreed to a compromise proposal by Vasconcellos that will provide counties and other Medi-Cal contractors with an additional $50 million to help finance medical treatment for the working poor.

No Word From Deukmejian

Deukmejian so far has not indicated whether he will support the increase, which is linked to a proposed $15-million allocation to cover operating deficits in UC teaching hospitals in Orange, San Diego and Sacramento counties, and a $20-million appropriation that will go primarily to county hospitals to help pay for the cost of the medically indigent.

The budget conferees also appropriated $11.6 million in construction funds for UC hospitals.