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 19, 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
AB 748 (Eggman)
Page 1
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
AB 748 (Eggman)
Page 2
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
AB 748 (Eggman)
Page 3
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,
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.