BILL ANALYSIS Ó
AB 748
Page 1
ASSEMBLY THIRD READING
AB 748 (Eggman)
As Amended May 6, 2013
Majority vote
JUDICIARY 9-0 APPROPRIATIONS 12-5
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|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 |
| | | | |
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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
FN: 0000591