BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 748
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          ASSEMBLY THIRD READING
          AB 748 (Eggman)
          As Amended May 6, 2013
          Majority vote 

           JUDICIARY           9-0         APPROPRIATIONS      12-5        
           
           ----------------------------------------------------------------- 
          |Ayes:|Wieckowski, Wagner,       |Ayes:|Gatto, Bocanegra,         |
          |     |Alejo, Chau, Dickinson,   |     |Bradford,                 |
          |     |Garcia, Gorell,           |     |Ian Calderon, Campos,     |
          |     |Maienschein, Stone        |     |Eggman, Gomez, Hall,      |
          |     |                          |     |Rendon, Pan, Quirk, Weber |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |Nays:|Harkey, Bigelow,          |
          |     |                          |     |Donnelly, Linder, Wagner  |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Bases the interest accrual rate on claims or judgments  
          against the state or public entities upon a United States (U.S.)  
          Treasury index, as specified.  Specifically,  this bill :  

          1)Provides, except as specified, that the prejudgment interest  
            rate on any tax or inverse condemnation claim against a public  
            entity 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.  Provides that this rate shall control  
            until such time as the judgment 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 2%. 

          2)Provides, except as specified, the post-judgment or  
            post-settlement interest rate on a tax or inverse condemnation  
            claim against a state or state agency shall commence to accrue  
            180 days from the date of the final judgment or settlement and  
            shall accrue at an annual rate equaling the weekly average  
            one-year constant maturity U.S. Treasury yield at the time of  
            the judgment or settlement plus 2%, but shall not exceed 7%  
            per annum. 

          3)Provides, except as specified, that the post-judgment or  
            post-settlement interest rate on a tax or inverse condemnation  








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            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  
            2%. 
           
          EXISTING LAW  : 

          1)Bars a suit for money damages against a public entity on a  
            cause of action for which a claim is required to be presented,  
            until a written claim has been presented to the public entity  
            and acted upon by the California Victim Compensation and  
            Government Claims Board, the governing body of a local public  
            entity, the Judicial Council, or the Trustees of the  
            California State University, as applicable, or has been deemed  
            to have been rejected, except as specified.  

          2)Provides that a judgment for the payment of money against the  
            state or state agency is enforceable until 10 years after the  
            judgment is final and provides that interest on the amount of  
            a judgment or settlement for the payment of money against the  
            state shall commence to accrue at 180 days from the date of  
            the final judgment or settlement.  Specifies that this  
            provision does not apply to any claim approved by the  
            California Victim Compensation and Government Claims Board.  

          3)Provides that a judgment for payment of money against a local  
            public entity is enforceable until 10 years after the time the  
            judgment becomes final or, if the judgment is payable in  
            installments, until 10 years after the final installment is  
            due.  

          4)Requires, under the California Constitution, that the  
            Legislature set the rate of interest upon a judgment rendered  
            in any court of this state at not more than 10% per annum.  In  
            the absence of the setting of such a rate by the Legislature,  
            the California Constitution provides that the rate of interest  
            on any judgment is 7% per annum.  (Section 1 of Article 15 of  
            the California Constitution.)  Provides, therefore, that the  
            interest rate on judgments against the state or a public  
            entity is set at 7% per annum.  (Harland v. State of  
            California (1979) 99 Cal. App. 3d 839; California Fed. Savings  
            & Loan Assn. v. City of Los Angeles (1995) 11 Cal 4th 342.) 

          5)Provides for a legal rate of interest of 10% per annum on  








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            civil judgments arising out of tort claims, as specified.   
            However, this provision does not apply to any tort actions  
            against a public entity, or a public employee acting within  
            the scope of employment.  

          6)Provides that every person who is entitled to recover damages,  
            as specified, is entitled also to recover interest thereon  
            from that day, except during such time as the debtor is  
            prevented by law, or by the act of the creditor from paying  
            the debt.  Specifies that this provision is applicable to  
            recovery of damages and interest from any such debtor,  
            including the state or any county, city, city and county,  
            municipal corporation, public district, public agency, or any  
            political subdivision of the state.  

          7)Provides that no interest is payable on the amount allowed by  
            the California Victim Compensation and Government Claims Board  
            on a claim if payment of the claim is subject to approval of  
            an appropriation by the Legislature.  However, if the  
            appropriation is made, interest on the amount appropriated for  
            the payment of the claim commences to accrue 180 days after  
            the effective date of the law by which the appropriation is  
            enacted.  

          8)Provides, under federal law, that judgment interest rates in  
            federal district courts shall be calculated from the date of  
            the entry of the judgment, at a rate equal to the weekly  
            average one-year constant maturity Treasury yield, as  
            published by the Board of Governors of the Federal Reserve  
            System, for the calendar week preceding.  

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, 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 charges.

          (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.)
           
          COMMENTS  :  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  








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          the final judgment award.  The rationale for pre- and  
          post-judgment interest awards is twofold:  1) to compensate the  
          plaintiff for interest that would have accrued had the funds  
          been in the plaintiff's possession; and 2) to encourage  
          settlement, in the case of prejudgment interest, and to  
          encourage prompt payment of judgment, in the case of  
          post-judgment interest.  The California Constitution requires  
          the Legislature to set the judgment interest rate 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 (in  
          the absence of a clear legislative mandate to the contrary) that  
          the judgment interest rate for claims against public entities is  
          7%.  (Harland v. State of California (1979) 99 Cal. App. 3d 839;  
          California Fed. Savings & Loan Assn. v. City of Los Angeles  
          (1995) 11 Cal 4th 342.) 

          According to the author, this existing judgment interest regime  
          discussed above "was enacted during a time when inflation was  
          skyrocketing.  At the time, the rates adopted were lower than  
          the market rates.  Now the reverse has happened and market rates  
          are far lower, but there has been no adjustment to reflect  
          this."   

          This bill, therefore, would tie 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%.  
           Specifically, the prejudgment interest rate would be set at the  
          U.S. Treasury yield; the post-judgment interest rate would be  
          set at the U.S. Treasury yield plus 2%.  Currently the U.S.  
          Treasury yield, as published by the Board of Governors of the  
          Federal Reserve System, is less than 1% per annum.  In adopting  
          this index, this bill would create substantial reductions in  
          both pre- and post-judgment rates.  Consistent with the  
          Constitution, even if the U.S. Treasury yield were to suddenly  
          rise, the judgment interest rate could never surpass 7%.

          This bill would adopt a modified version of the judgment  
          interest rate established under federal law for civil actions  
          brought in federal court.  The federal formula calculates the  
          judgment interest rate based on a rate equal to the weekly  
          average one-year constant maturity U.S. Treasury yield, as  
          published by the Board of Governors of the Federal Reserve  








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          System, for the preceding calendar week.  This bill would apply  
          this same measure to prejudgment interest rates - that is,  
          interest on the amount of the underlying claim - and would apply  
          the federal measure plus 2% to post-judgment interest rates.   
          The rationale for the latter is that post-judgment interest  
          rates have generally been seen as providing an incentive for  
          prompt payment of judgments, in addition to providing fair  
          compensation.  

          According the Urban Counties Caucus (UCC), the bill's sponsor,  
          this measure will "ensure that local governments would be  
          charged a reasonable interest rate on claims."  UCC contends  
          that in the counties alone, interest rates have totaled over $15  
          million in just the last three years.  UCC points out that these  
          payments come from taxpayer funds, and therefore "lowering the  
          interest rate will help to save money and ensure that all  
          parties are given a level playing field."  UCC, like many of the  
          other supporters of this bill, reject the contention made by the  
          opposition that lowering judgment interest rates will reduce a  
          local public entity's incentive to pay judgments promptly.  UCC  
          points out that existing law, most notably the prompt payment  
          requirements in the Government Claims Act, already ensures that  
          local public entities will pay judgments in a timely manner.   
          Several other local government groups and district associations  
          support this bill for substantially the same reasons as UCC.

           
          Analysis Prepared by  :    Thomas Clark / JUD. / (916) 319-2334 

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