BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        AB 748|
          |Office of Senate Floor Analyses   |                              |
          |1020 N Street, Suite 524          |                              |
          |(916) 651-1520         Fax: (916) |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 
           
                                           
                                    THIRD READING


          Bill No:  AB 748
          Author:   Eggman (D)
          Amended:  8/20/13 in Senate
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  5-1, 7/2/13
          AYES:  Anderson, Corbett, Jackson, Leno, Monning
          NOES:  Walters
          NO VOTE RECORDED:  Evans

           SENATE APPROPRIATIONS COMMITTEE  :  7-0, 8/19/13
          AYES:  De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg

           ASSEMBLY FLOOR  :  64-14, 5/30/13 - See last page for vote


           SUBJECT  :    Judgments against the state:  interest

           SOURCE  :     Coalition of Joint Powers Authorities
                      Urban Counties Caucus


           DIGEST  :    This bill provides that, unless another provision of  
          law provides a different interest rate, interest accrues in a  
          tax or fee claim against a public entity that results in a  
          judgment against the public entity at a rate equal to the weekly  
          average one year constant maturity United States Treasury yield,  
          not to exceed 7% per annum.  This bill also provides that when  
          the judgment becomes enforceable pursuant to existing law  
          interest accrues at an annual rate equal to the weekly average  
          one year constant maturity United States Treasury yield at the  
          time of the judgment plus 2%, but not to exceed 7% per annum.
                                                                CONTINUED





                                                                     AB 748
                                                                     Page  
          2


           ANALYSIS  :    Existing law provides that the rate of interest on  
          a judgment rendered in any court in this state is set by the  
          Legislature at not more than 10% per annum.  Existing law  
          provides that such rate may be variable and based upon interest  
          rates charged by federal agencies or economic indicators, or  
          both.  In the absence of the setting of such rate by the  
          Legislature, the rate of interest is 7% per annum.  

          Existing law, the Enforcement of Judgments Law, provides that  
          interest accrues at the rate of 10% per annum on the principal  
          amount of a judgment that remains unsatisfied.  However,  
          existing case law specifies that that the interest rate on  
          judgments against the state or a local public entity is set at  
          7% per annum, as public entities are not subject to the  
          Enforcement of Judgments Law and as the Legislature has not set  
          a specific rate for public entities.  

          Existing federal law provides that interest is allowed on any  
          money judgment in a civil case recovered in a district court and  
          that the judgment interest rate 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 the date of the judgment.  Existing  
          federal law specifies that interest be computed daily to the  
          date of payment except as provided, and be compounded annually.   


          Existing federal law provides that the above provisions not  
          apply in any judgment of any court with respect to any internal  
          revenue tax case.  Interest in those cases is allowed at the  
          underpayment rate or overpayment rate (whichever is appropriate)  
          established under specified Internal Revenue Service law.  

          Existing law provides that every person who is entitled to  
          recover damages, as specified, and the right to recover which is  
          vested in him/her upon a particular day, 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.  That requirement is applicable to  
          recovery of damages and interest from any debtor, including the  
          state or any county, city, city and county, municipal  
          corporation, public district, public agency, or any political  

                                                                CONTINUED





                                                                     AB 748
                                                                     Page  
          3

          subdivision of the state.  

          Existing law permits every person who is entitled under any  
          judgment to receive damages based upon a cause of action in  
          contract where the claim was unliquidated, to also recover  
          interest thereon from a date prior to the entry of judgment as  
          the court may, in its discretion, fix, but in no event earlier  
          than the date the action was filed.  

          This bill 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 accrues at a rate equal to the weekly average one year  
          constant maturity United States Treasury yield, but will not  
          exceed 7% per annum.  That rate will control until the judgment  
          becomes enforceable under Section 965.5 or 970.1 of the  
          Government Code, at which time interest will accrue at an annual  
          rate equal to the weekly average one year constant maturity  
          United States Treasury yield at the time of the judgment plus  
          2%, but will not exceed 7% per annum.

          Existing law prohibits 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.  

          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.  

          Existing law specifies that a judgment for the payment of money  
          against the state or a state agency is not enforceable under the  
          Enforcement of Judgments Law in the Code of Civil Procedure, as  
          specified. 

          Existing law provides that interest on the amount of a judgment  
          or settlement for the payment of money against the state,  
          commences to accrue at 180 days from the date of the final  

                                                                CONTINUED





                                                                     AB 748
                                                                     Page  
          4

          judgment or settlement.  This provision does not apply to any  
          claim approved by the California Victim Compensation and  
          Government Claims Board. 

          This bill provides that, unless another statute provides a  
          different interest rate, interest on a tax or fee judgment or  
          settlement for the payment of monies 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%, but not exceeding 7% per annum. 

          Existing law 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.  

          Existing law specifies that a judgment, whether or not final,  
          against a local public entity is not enforceable under the  
          Enforcement of Judgments Law in the Code of Civil Procedure, as  
          specified. 

          This bill adds that, unless another statute provides a different  
          interest rate, interest on a tax or fee judgment or settlement  
          against a local public entity accrues 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%, but  
          shall not exceed 7% per annum.

           Background
           
          Article XV of the California Constitution provides that in  
          setting the interest rate on a judgment rendered in any court in  
          this state, the rate is set by the Legislature at not more than  
          10% per annum, and may be made variable and based upon interest  
          rates charged by federal agencies or economic indicators, or  
          both.  At the same time, in the absence of the setting of such  
          rate by the Legislature, the state constitution dictates that  
          the rate of interest automatically sets at 7% per annum.  

          While the Legislature has, since 1982, set the interest rate on  
          judgments under the Enforcement of Judgments Law at 10%, the  
          Enforcement of Judgments law does not apply to judgments against  
          the state or state entities, or to local entities.  As such, and  

                                                                CONTINUED





                                                                    AB 748
                                                                     Page  
          5

          because the Legislature has not otherwise prescribed a rate for  
          judgments against state or local public entities, the interest  
          rate for such judgments is automatically set at 7% annually,  
          consistent with the state constitution.  (See California Federal  
          Savings & Loan Association v. City of Los Angeles (1995) 11  
          Cal.4th 342, 348.)

           Prior Legislation  

          SB 1504 (Kehoe, Chapter 19, Statutes of 2011) with respect to  
          amounts allowed by the California Victim Compensation and  
          Government Claims Board, 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.

          SB 1117 (Walters, 2010) was nearly identical to SB 393 (Harman,  
          2009).  Additionally, this bill would have provided that  
          judgments against local governmental entities would have an  
          interest accrual rate limited to the federal short-term rate  
          plus 2%.  This bill failed passage in the Senate Judiciary  
          Committee. 

          SB 393 (Harman, 2009) would have provided that the interest  
          which accrues on the principal amount of a judgment remaining  
          unsatisfied would be limited to the federal-short term rate, as  
          determined annually by the Controller, plus 2%.  This bill would  
          also have provided that the total interest rate may not exceed  
          10% per annum.  Additionally, this bill would have provided  
          that, if the plaintiff made an offer to compromise that the  
          defendant did not accept prior to trial or within 30 days,  
          whichever occurs first, and the plaintiff obtained a more  
          favorable judgment, the interest on the portion of the judgment  
          awarded as compensatory damages for personal injury would be  
          limited to the federal-short term rate, as determined annually  
          by the Controller, plus 2%.  This bill failed passage in the  
          Senate Judiciary Committee. 

          SB 1042 (Harman, 2005) would have provided that interest accrues  
          at the federal short-term rate plus 3%, except as otherwise  
          provided in a written contract, not to exceed 10% per annum on  
          judgments, as specified.  The bill would have required the  
          Controller to annually establish the interest rate, as  
          specified, and to notify the auditor of each county of the rate.  

                                                                CONTINUED





                                                                     AB 748
                                                                     Page  
          6

           This bill died in the Assembly Judiciary Committee.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No


          According to the Senate Appropriations Committee:


           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 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.

           SUPPORT  :   (Verified  8/12/13)

          Coalition of Joint Powers Authorities (co-source)
          Urban County Caucus (co-source)
          California Association of County Treasurers and Tax Collectors
          California Association of Joint Powers Authorities
          California State Association of Counties
          City and County of San Francisco
          Civil Justice Association of California
          Los Angeles County Board of Supervisors
          Rural County Representatives of California
          Santa Clara County Board of Supervisors

                                                                CONTINUED





                                                                     AB 748
                                                                     Page  
          7


           ARGUMENTS IN SUPPORT  :    According to the author:

             The recovery of interest has two aims:  1) to compensate a  
             plaintiff for the loss of the use of the money that the  
             plaintiff would have otherwise had and 2) to encourage  
             settlements.

             California's judgment interest rate against public  
             entities such as schools, special districts, local and  
             state government is out-of-date and provides an  
             artificially higher rate of return than what the current  
             market could provide. These rates result in very large  
             sums of taxpayer money being spent in legal costs.

             When California's judgment interest rate was codified, in  
             the late 70s and early 80s, the U.S. had been in severe  
             economic recession - characterized by high inflation but  
             low business activity - and interest rates had begun to  
             skyrocket, reaching as high as 21 [percent].

             At the time, the rates adopted were considered significant  
             relief. Now the reverse has happened and market rates are  
             far lower, but there has been no adjustment to reflect  
             this. At a time when local governments continue to  
             struggle, with loss of revenue forcing cuts to vital  
             services - education, public safety, social services -   
             the rate of interest these public entities pay on  
             judgments remains high. That rate is not responsive to the  
             times or to the public interest. In current economic  
             conditions, it is far higher than the market can justify,  
             posing an unnecessary burden to taxpayers, contra[ry] to  
             the public good. Interest on judgments arising from tax  
             and inverse condemnation cases have cost California  
             counties $14 million in the past three years alone.

             This bill saves taxpayer money for vital services by tying  
             the rate applying to public entities to a market rate - as  
             does the federal government - that serves as a close  
             indicator of the economy's health, and a fair  
             approximation of the value of the judgment.

             [Specifically,] AB [748] would tie the pre-judgment  
             interest rate against public entities - limited only to  

                                                                CONTINUED





                                                                     AB 748
                                                                     Page  
          8

             tax, fee and inverse condemnation cases - to the weekly  
             average 1-year constant maturity (nominal) Treasury yield,  
             and that rate plus 2 percent in post-judgment interest.


           ASSEMBLY FLOOR  :  64-14, 5/30/13
          AYES:  Achadjian, Alejo, Ammiano, Atkins, Bloom, Blumenfield,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  
            Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Daly,  
            Dickinson, Eggman, Fong, Fox, Frazier, Garcia, Gatto, Gomez,  
            Gonzalez, Gordon, Gorell, Gray, Hall, Roger Hernández,  
            Jones-Sawyer, Levine, Lowenthal, Maienschein, Medina,  
            Mitchell, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan,  
            Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon,  
            Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber,  
            Wieckowski, Wilk, Williams, Yamada, John A. Pérez
          NOES:  Allen, Bigelow, Dahle, Donnelly, Beth Gaines, Grove,  
            Hagman, Harkey, Jones, Linder, Logue, Mansoor, Melendez,  
            Morrell
          NO VOTE RECORDED:  Holden, Vacancy


          AL:d  8/20/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

                                   ****  END  ****
          

















                                                                CONTINUED