BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 748|
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THIRD READING
Bill No: AB 748
Author: Eggman (D)
Amended: 8/30/13 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.
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Senate Floor Amendments of 8/30/13 strike references to
settlements such that the bill only applies the proposed pre-
and post- judgment interest rates to tax or fee judgments.
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
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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
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.
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Existing law provides that interest on the amount of a judgment
for the payment of money against the state, commences to accrue
at 180 days from the date of the final judgment. 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 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 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 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
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Enforcement of Judgments law does not apply to judgments against
the state or state entities, or to local entities. As such, and
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
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Controller to annually establish the interest rate, as
specified, and to notify the auditor of each county of the rate.
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
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Rural County Representatives of California
Santa Clara County Board of Supervisors
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.
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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 9/1/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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