Governor, Assembly Democrats Agree on Divestiture

Gov. George Deukmejian and Democratic Assembly leaders reached agreement Tuesday on a sweeping plan to divest state and University of California pension funds of up to $10.6 billion in investments in companies that do business in South Africa.

If the plan is approved by the Legislature, California will enact the largest divestiture program in the nation and become a leader among governments in protesting South Africa’s system of racial separation.

“This is a good bill,” said Assemblywoman Maxine Waters (D-Los Angeles) after meeting with Deukmejian. “The governor is obviously very, very sincere about it, and I’m very pleased about it.”

Waters will amend a bill pending in the Senate to incorporate the governor’s proposal. Assembly Speaker Willie Brown (D-San Francisco), who also attended the meeting, predicted that the measure would quickly win the Legislature’s approval.

“I’m ecstatic,” Brown told reporters.

Brown and Waters, both of whom are black, are strong longtime advocates of divestiture as a strategy for pressuring South Africa into abolishing apartheid.

Deukmejian, who vetoed a much less potent proposal by Waters last year, recently shifted his stand and announced that he favors divesting UC and state pension funds of all investments in firms linked to South Africa.

The plan could ultimately require the sale of $5.2 billion in stocks and bonds held by the Public Employees Retirement System and $2.3 billion in stocks and bonds owned by the State Teachers Retirement System.

In addition, the measure would clear the way for UC to go ahead with its plan to sell $3.1 billion in pension funds by including a provision absolving the regents of the university and state pension fund managers of any personal liability if the state loses money as a result of divestiture.

Last month, the UC regents voted to adopt a proposal by Deukmejian to dispose of holdings linked to South Africa over a four-year period--provided the Legislature approves legislation indemnifying them from personal liability.

Specifically, the UC and pension fund divestiture plans would give companies a 12-month grace period to halt their operations in white minority-ruled South Africa. However, UC and the state would sell stock in any firm that expanded South Africa operations during this period.

After that, fund managers would have three years to divest holdings in companies still doing business in South Africa. At least one-third of the investments would have to be disposed of each year until all the stocks had been sold.

“I think everyone is repulsed by the system of apartheid, and this is one way to deal with it,” Steven A. Merksamer, the governor’s chief of staff, told reporters.

The agreement on the divestiture plan removes a major obstacle to the passage of separate legislation that would aid many multinational corporations by altering the state’s unitary form of taxation. (Under the unitary method, firms are taxed on profits earned outside California.)

The two issues became linked last year when advocates of divestiture seized on the unitary legislation, which the governor supports, as a way of winning concessions on the issue of apartheid. As a result, the unitary bill had been stalled.

“It now separates the two entirely,” Brown said.

Rejection of Fluor Corp. for a Convention Center contract isexpected because of the company’s dealings in South Africa. Page 24.