BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 748
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 748 (Eggman)
          As Amended August 30, 2013
          Majority vote 
           
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          |ASSEMBLY:  |64-14|(May 30, 2013)  |SENATE: |39-0 |(September 9,  |
          |           |     |                |        |     |2013)          |
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           Original Committee Reference:    JUD.  

           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 interest accrues in on any  
            tax or lien claim against a public entity that results in  
            public judgment against the public entity at a rate equal to  
            the weekly average one-year constant maturity U.S. Treasury  
            yield, but not to exceed 7% per annum.  

          2)Provides, except as specified, that when a judgment becomes  
            enforceable, as specified, interest accrues 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%, but not to  
            exceed 7% per annum. 

          3)Provides, except for claims approved by the California Victim  
            Compensation and Government Claims Board, that interest on the  
            amount of a judgment for the payment of moneys against the  
            state to accrue 180 days from the date of the final judgment  
            or settlement. Specifies that unless another provision of law  
            provides a different interest rate, interest on a tax or fee  
            judgment for the payment of moneys against the state or a  
            local entity accrues at a rate equal to the weekly average  
            one-year constant maturity U.S. Treasury yield at the time of  
            the judgment plus 2%, but not to exceed 7% per annum. 
           
          The Senate amendments  modify accrual rate to the U.S. Treasury  
          yield plus 2% and eliminate a provision that would have applied  
          this accrual rate to inverse condemnation actions. 
           
          EXISTING LAW  : 









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          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  
            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  








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            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 Senate Appropriations  
          Committee:

          1)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.

          2)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). 

          3)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  








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            from the date of final judgment or settlement pursuant to  
            existing law.
           
          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  
          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, the 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,  
          that arise from a tax or fee claim, to the weekly average U.S.  
          Treasury yield, but not to exceed 7%.  Specifically, this bill  
          adopts what is effectively 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  
          System, for the preceding calendar week.  This bill would, for  
          any tax or fee claims against a government entity, apply the  
          federal treasury rate plus 2% to post-judgment interest rates,  
          but not to exceed 7% per annum.  








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          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."
           

          Analysis Prepared by  :    Thomas Clark / JUD. / (916) 319-2334 


          FN:  
          0002267