BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 748 (Eggman) - Judgments against public entities: interest. 
          
          Amended: July 8, 2013           Policy Vote: Judiciary 5-1
          Urgency: No                     Mandate: No
          Hearing Date: August 12, 2013                           
          Consultant: Jolie Onodera       
          
          This bill does not meet the criteria for referral to the  
          Suspense File.
          
          
          Bill Summary: AB 748 would modify the interest rates charged to  
          state and local governments on tax and fee claims against those  
          entities, as specified.

          Fiscal Impact: 
              Likely significant savings to state and local governments  
              in reduced interest payments for tax and fee judgments  
              against public entities based on the one-year constant  
              maturity U.S. Treasury (CMT) yield, which is currently  
              significantly less than one percent (0.14%). Information  
              from the counties indicates that interest paid on three  
              judgments alone totaled $18.5 million.
              Unknown, potential reduction in revenues to state and local  
              entities to the extent interest payments on judgments  
              against public entities would have been paid to other state  
              or local entities at the higher rate of interest (in the  
              case of City of Clovis v. County of Fresno, for example, the  
              City of Clovis was paid $1.8 million in interest, but would  
              have received a significantly lower payment under the  
              interest rates proposed herein). 
              Potential increase in state interest payments related to  
              non-tax or non-fee judgments against state agencies that  
              would commence accruing interest immediately instead of 180  
              days from the date of final judgment or settlement pursuant  
              to existing law. 

          Background: Existing law provides that the rate of interest on a  
          judgment rendered in any court in California is to be set by the  
          Legislature at not more than 10 percent per annum. Existing law  
          provides that the rate may be variable and based upon interest  
          rates charged by federal agencies or economic indicators, or  








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          both. In the absence of a rate set by the Legislature, the rate  
          of interest is 7 percent per annum (California Constitution,  
          Article XV, Section 1).

          Although the Enforcement of Judgments Law (Code of Civil  
          Procedure § 685.010(a)) provides that interest accrues at the  
          rate of 10 percent per annum on the principal amount of a  
          judgment that remains unsatisfied, existing case law specifies  
          that the interest rate on judgments against the state or a local  
          public entity is set at 7 percent per annum, as public entities  
          are not subject to the Enforcement of Judgments Law and the  
          Legislature has not set a specific rate for public entities  
          (Harland v. State of California (1979) 99 Cal.App.3d 839;  
          California Federal Savings & Loan Association v. City of Los  
          Angeles (1995) 11 Cal.4th 342).

          Existing law 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 or, if the judgment is payable in  
          installments, until 10 years after the final installment becomes  
          due (GC § 965.5(a)). In addition, existing law 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 (GC §  
          965.5(c)).

          Proposed Law: This bill would modify the interest rates charged  
          to state and local public entities on tax and fee judgments  
          against these public entities, as follows: 
                 Provides that unless another statute provides a  
               different interest rate, in a tax or fee claim against a  
               public entity that results in a judgment against the public  
               entity, interest shall accrue at a rate equal to the weekly  
               average one year constant maturity U.S. Treasury yield, but  
               shall not exceed 7 percent per annum. That rate shall  
               control until the judgment becomes enforceable, as  
               specified, at which time interest shall accrue at an annual  
               rate equal to the weekly average one year constant maturity  
               U.S. Treasury yield at the time of the judgment plus 2  
               percent, but shall not exceed 7 percent per annum.
                 Provides that unless another statute provides a  
               different interest rate, interest on a tax or fee judgment  
               or settlement for the payment of moneys against the state  
               shall commence to accrue 180 days from the date of the  








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               final judgment or settlement and shall accrue at a rate  
               equal to the weekly average one year constant maturity U.S.  
               Treasury yield at the time of the judgment or settlement  
               plus 2 percent, but shall not exceed 7 percent per annum.
                 Provides that unless another statute provides a  
               different interest rate, interest on a tax or fee judgment  
               or settlement against a local public entity shall accrue at  
               a rate equal to the weekly average one year constant  
               maturity U.S. Treasury yield at the time of the judgment or  
               settlement plus 2 percent, but shall not exceed 7 percent  
               per annum.

          Related Legislation: SB 1504 (Kehoe) Chapter 19/2011, with  
          respect to amounts allowed by the California Victim Compensation  
          and Government Claims Board and other claims against the state,  
          provided that interest shall commence to accrue on the amount of  
          a judgment or settlement for the payment of money against the  
          state 180 days from the date of the final judgment or  
          settlement.

          Staff Comments: This bill would tie the judgment interest rate  
          on tax or fee judgments or settlements against a state or local  
          public entity to the weekly average U.S. Treasury yield, but not  
          to exceed seven percent. Specifically, the pre-judgment interest  
          rate would be set at the U.S. Treasury yield, and the  
          post-judgment interest rate would be set at the U.S. Treasury  
          yield plus two percent. Currently the U.S. Treasury yield, as  
          published by the Board of Governors of the Federal Reserve  
          System, is less than one percent per annum (0.14%). In adopting  
          this index, this bill would create substantial reductions in  
          both pre- and post-judgment rates, and consequently, would  
          likely result in significant savings to state and local public  
          entities in reduced interest payments on tax and fee judgments  
          and settlements. Consistent with the Constitution, even if the  
          U.S. Treasury yield were to suddenly rise, the judgment interest  
          rate could never surpass seven percent.

          Staff notes, though not likely to offset the degree of savings  
          noted above, both state and local entities could potentially  
          experience a reduction in revenues to the extent interest  
          payments on judgments against public entities would have been  
          paid to other state or local entities at the higher rate of  
          interest. As an example, in the case of City of Clovis v. County  
          of Fresno, the City of Clovis was provided an interest payment  








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          of $1.8 million, but would have received a significantly lower  
          payment under the interest rate proposed under the provisions of  
          this measure.

          This bill amends and narrows the provision of existing law that  
          specifies the accrual of interest on any judgment or settlement  
          for the payment of money against the state to commence to accrue  
          180 days from the date of the final judgment or settlement. By  
          narrowing the 180-day provision to tax and fee judgments only,  
          the provisions of this bill could result in costs to the state  
          for higher interest payments on non-tax and non-fee judgments  
          against the state that would no longer be covered under the  
          180-day grace period.

          Recommended Amendments: In order to retain existing law that  
          delays the accrual of interest to 180 days from the date of the  
          final judgment or settlement on  all  claims against the state,  
          and not just tax and fee claims as narrowed by this bill, staff  
          recommends an amendment to GC § 965.5 as follows:


          SEC. 2. Section 965.5 of the Government Code is amended to read:

          (c)  Unless another statute provides a different interest rate,  
          interest    Interest on the amount of a   tax or fee  judgment or  
          settlement for the payment of moneys against the state shall  
          commence to accrue 180 days from the date of the final judgment  
          or settlement  and   .  
           (d) Unless another statute provides a different interest rate,  
          interest on a tax or fee judgment or settlement for the payment  
          of moneys against the state  shall accrue at a rate equal to the  
          weekly average one year constant maturity United States Treasury  
          yield at the time of the judgment or settlement plus 2 percent,  
          but shall not exceed 7 percent per annum. 
           (e)   This subdivision does   Subdivisions (c) and (d) shall  not  
          apply to any claim approved by the California Victim  
          Compensation and Government Claims Board.