Divestiture Bill’s Cost Put at $50 Million

Democratic-backed South African divestiture legislation would cost the state $50 million a year in lost investment income, according to a state Department of Finance analysis made available to The Times on Friday.

Analysts attributed the threatened loss to low-yield investments that pension systems and state Treasurer Jesse M. Unruh would have to make if the bill becomes law and they are forced to sell securities of companies operating in South Africa.

The bill, introduced by Assemblywoman Maxine Waters (D-Los Angeles) to protest the policy of discrimination against blacks by the white-minority government of South Africa, has passed the Assembly and will be up for a vote in the Senate next week.

Under the so-called “disinvestment” bill, state pension funds and the treasurer’s office, beginning in January, 1987, would be prohibited from making new investments in or loans to banks and other corporations doing business in South Africa. It would also require the University of California regents to adopt a policy of disinvestment by 1987. It carries both criminal and civil penalties for failure to do so.

Waters disagreed that her proposal would damage the system, calling the report “ridiculous.”

‘Potential for Loss’

She said the most prudent course the state could take would be to withdraw investments in companies doing business in South Africa because of civil and political turmoil there.

“The dollars of any American firm invested in South Africa are at great risk. There is a tremendous potential for loss,” she said.

Her bill is similar to a provision to the state budget that she sponsored and that Republican Gov. George Deukmejian vetoed in June. This week her bill was described by Assembly Speaker Willie Brown (D-San Francisco) as being a key to passage of unitary tax repeal legislation sought by the governor. The unitary tax is levied on the income of multinational corporations doing business in California.

Brown said enactment of South Africa protest legislation is the only issue standing in the way of Assembly passage of the unitary tax repeal bill.

Analysts in Deukmejian’s Finance Department, in a report addressed to Waters, said enactment of the disinvestment bill would so restrain pension fund managers that it would raise serious legal and constitutional questions about their ability to prudently manage public funds and act in the best interests of state pensioners.

$26-Million Loss

It quoted Unruh’s office as saying the state would lose $26 million annually as a result of a .75% lower yield on the $3.5 billion the office invests in various loan instruments.

The state’s two major pension funds, the $26-billion Public Employees’ Retirement System and the $15-billion State Teachers’ Retirement System, would lose $16 million and $8 million in investment income respectively, the report said. This year, public employee pension system investments are expected to earn $2.8 billion and the teachers fund, $1.5 billion.

“In the case of PERS and STRS, the lower yield would come from investing in growth companies which pay lower dividends in order to reinvest profits, instead of Fortune 500 companies, many of which are invested in South Africa,” the report said.

The Finance Department opposes the bill, as does the Public Employees’ Retirement System. Directors of the teachers’ fund are neutral. Other major opponents are the California Chamber of Commerce and the California Manufacturers Assn.

The bill has the support of a long list of political, religious and labor groups, including the California State Employees’ Assn., the state’s biggest public employee union, and the California Teachers’ Assn.