Vote by Public Urged on L.A. Pension Links to S. Africa

A committee of the Los Angeles City Council on Tuesday recommended that voters be allowed to decide whether the city’s $4-billion pension funds should be purged of all investments in firms that do business in South Africa.

The divestment issue would be presented as a Charter amendment, which the full council would have to approve before it could be placed on the ballot. If approved by the council, the matter could go before voters on the next scheduled ballot in June.

Such an approach would take the controversial divestment decision out of the hands of the city’s pension commissioners who have been warned by the city attorney’s office that they might be vulnerable to lawsuits if they sanctioned a change in investment policy that lowered returns on pension investments.

The proposal to put the issue on the ballot was made by Finance Committee member David Cunningham and could ease a tense situation developing between council members, impatient to adopt a strong divestment law, and pension commissioners who have been reluctant to mix social policy with investment strategy.

Lack of Authority

Neither Mayor Tom Bradley nor the council have the authority to force the commissioners to divest. However, the mayor does have the power to replace commissioners, and he threatened to do so last May in an off-the-cuff comment, which he has neither repeated nor withdrawn, if the commissioners did not go along with his divestment plan.

Commissioners have taken no action on the plan.

Bradley’s plan, announced in May, would follow a course taken by many other states and cities in reaction to South Africa’s policy of racial subjugation--apartheid. Over a period of several years, it could remove nearly $1 billion in city-controlled assets from banks and businesses that do business with South Africa. Most of those funds are in the hands of the city’s three pension funds, which are managed for the benefit of retiring city workers.

The debate over divestment has focused on two issues--whether the financial health of the city’s pension funds would be jeopardized if commissioners were prohibited from investing in the many blue chip companies, such as IBM, that do business in South Africa, and whether the pension commissioners would violate their ethical responsibilities if they agreed to a course of action that could impair the earning power of the funds.

Gary Mattingly, who administers the Police and Fire Pension System, said Tuesday that two local police and fire unions have indicated that they will sue commissioners if they breach their fiduciary responsibilities.

Moreover, Assistant City Atty. Siegfried Hillmer said that it is not clear whether state law would protect commissioners against personal financial liability in the event of a successful claim against them.

Hillmer said it is even unclear whether the commissioners would be able to buy insurance that would pay their costs if they lost a suit charging them with violating their fiduciary responsibilities.

But Hillmer said that the commissioners would not be exposed to liability if the voters approve a Charter amendment calling for divestment of the pension funds.