Divestiture Plan Approved : Compromise Clears Way for State Budget OK

Legislative negotiators approved a proposed $35.3-billion state budget Tuesday that includes an unprecedented though limited policy aimed at restricting new pension fund investments in companies that do business with South Africa.

The action ended a five-day battle and set the stage for final approval by the Senate and Assembly.

The new budget policy protesting the racial apartheid policies of the white minority South African government was adopted on a 4-2 vote after a compromise was reached by the four Democrats who control the two-house conference committee. Both Republicans on the committee voted no.

The compromise would require state pension fund administrators to adopt policies and plans that would by Jan. 1 “end all new investments in institutions which make new investments or new loans to the Republic of South Africa. . . .”

Additionally, by July 1, 1986, the administrators would be required to adopt a plan for divestment in companies that “provide military supplies used for oppressive purposes or support the apparatus of apartheid control.”

The original divestiture proposal made by Assembly Democrats would have required publicly funded pension systems for public employees, legislators, judges, teachers and the University of California to sell off all investments with companies that do business in South Africa.

This would have affected an estimated $10 billion in bank deposits, purchases of stocks and bonds, and real estate investments. The university said full divestment could cost it $100 million.

Though narrower in scope, the measure adopted Tuesday still appears to have some teeth, although it is unclear precisely how many and what companies would be affected.

The policy could also lead to legal challenges. The UC Board of Regents currently is grappling with the issue, and it is not known what effect the budget policy will have on them, although legislators clearly mean it to be binding. The committee-approved policy is similar to one being considered by the regents.

Minutes after the vote on the South Africa issue, the Republicans then joined Democrats in unanimously approving the budget bill, which is expected to be voted on by the Legislature on Thursday.

The budget as approved by the committee represents a substantial increase over the $34.6-billion budget first proposed in January by Republican Gov. George Deukmejian. But members of the committee said it contains the $1-billion reserve the governor steadfastly insisted upon.

An Assembly Ways and Means Committee analysis said the budget would increase spending for the fiscal year beginning July 1 by 9.4% over the current year, with increases for state employee salaries, community colleges, children’s services and mental health programs.

Assemblyman John Vasconcellos (D-San Jose) said, “The governor says he will blue-pencil any spending that threatens a balanced budget and a $1-billion reserve. There is no such threat in this budget.”

But Sen. John Seymour (R-Anaheim) said the committee-approved budget ignores most of Deukmejian’s recommendations on how to spend an unexpected surge in state tax collections of nearly $900 million. “That may very well set the stage for some vetoes and some blue-penciling,” he said.

The final action on the main budget bill was overshadowed in the final hours of committee deliberation by the emotional South Africa issue.

A switch in positions by Sen. Alfred E. Alquist (D-San Jose), the chairman of the committee, settled the fight that began Friday.

Alquist had raised the strongest objections to the hotly debated South Africa issue, saying that foreign policy had no place in a state budget. But two other Democratic Assembly members, Vasconcellos and Maxine Waters of Los Angeles, insisted on putting the provisions into the budget.

They said they believed it is morally wrong to invest state pension funds in companies that do business in South Africa.