BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 748
                                                                  Page  1

          Date of Hearing:   May 15, 2013

                                  Mike Gatto, Chair

                     AB 748 (Eggman) - As Amended:  May 6, 2013 

          Policy Committee:                              JudiciaryVote:9-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:               


          This bill modifies the interest accrual rate on certain  
          judgments against the state or a local public entity.   
          Specifically, this bill:  

          1)Provides, except as specified, that the prejudgment interest  
            rate on any tax or inverse condemnation claim resulting in a  
            judgment against a public entity, instead of accruing at 7%,  
            shall accrue at the same rate as the weekly average one-year  
            constant maturity U.S. Treasury yield, but shall not exceed 7%  
            per annum.  

          2)Provides that the interest rate per (1) shall control until  
            180 days after a judgment against the state becomes  
            enforceable, and then shall accrue at an annual rate equaling  
            the weekly average one-year constant maturity U.S. Treasury  
            yield at the time of judgment plus two percent. 

          3)Provides, except as specified, that the post-judgment or  
            post-settlement interest rate on a tax or inverse condemnation  
            claim against a local public entity shall accrue at a rate  
            equaling the weekly average one-year constant maturity U.S.  
            Treasury yield at the time of the judgment or settlement plus  
            two percent.

           FISCAL EFFECT  

          Based on current interest rates (currently well below one  
          percent), likely significant savings to the state agencies and  
          local governments from reduced pre- and post-judgment interest  


                                                                  AB 748
                                                                  Page  2

          [According to the California State Association of Counties,  
          interest payments by counties from tax and inverse condemnation  
          claims exceeded $14 million over the last three years.]


           1)Background  . In addition to damages, a prevailing plaintiff in  
            a civil suit is often entitled to prejudgment interest on the  
            amount of the claim and post-judgment interest on the amount  
            of the final judgment award.  The state Constitution requires  
            the Legislature to set the rate of interest upon a judgment  
            rendered at no more than 10% per annum, but in the absence of  
            a legislatively set rate, the Constitution provides that the  
            interest rate shall be 7% per annum.  The Legislature has set  
            a rate of 10% for civil suits between private litigants, and  
            the courts have held that the judgment interest rate for  
            claims against public entities is 7%.  

           2)Purpose  . The author contends that these interest rates are too  
            high, having been set a time when interest rates generally  
            were much higher than today.  The author contends this is  
            especially problematic for local governments, who are less  
            able to settle suits quickly and therefore can accumulate  
            significant prejudgment interest obligations.  This bill  
            therefore ties the judgment interest rate on judgments or  
            settlements against a state or local public entity to the  
            weekly average U.S. Treasury yield, but not to exceed 7%.  
            Currently the U.S. Treasury yield is less than one percent per  
            annum, thus creating substantial reductions in both pre- and  
            post-judgment rates.  This bill is supported by individual  
            local governments and associations representing cities,  
            counties, and districts.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081