Legislature(1993 - 1994)
1993-03-12 Senate Journal
Full Journal pdf1993-03-12 Senate Journal Page 0770 SB 161 SENATE BILL NO. 161 by the Senate Rules Committee by request of the Governor, entitled: "An Act relating to interest rates and calculation of interest under certain judgments and decrees and on refunds of certain taxes, royalties, or net profit shares; and providing for an effective date." was read the first time and referred to the State Affairs, Judiciary and Finance Committees. Zero fiscal notes published today from Department of Administration (2), Department of Transportation and Public Facilities and Department of Revenue. Governor's transmittal letter dated March 12: Dear Mr. President: Under the authority of art. III, sec. 18, of the Alaska Constitution, I am transmitting a bill relating to statutory interest rates. This bill would change the rate of prejudgment interest and interest paid on judgments and decrees, issued by Alaska courts, from 10.5 percent to the market rate for certain investments. The bill would also lower the rate of interest payable by the state on overpayments of taxes under AS43 and royalty and net profit shares under AS38. Both changes should have substantial cost savings for the state. As to interest on court judgments and decrees, AS09.30.070 presently requires that the rate of interest is 10.5 percent a year, unless a different lawful rate was established by written contract between the parties. Additionally, prejudgment interest is also paid at the 10.5 percent rate. Currently, these statutory rates substantially exceed the present market rate for investments. The result is a bonanza for individuals who receive a favorable judgment. Also, with the statutory interest rate being fixed, the rate does not automatically respond to market rate increases during periods of high inflation, exceeding the 10.5 percentage rate. The result is that the individual who prevails suffers an additional loss when a judgment or decree is not timely paid or is paid in installments. 1993-03-12 Senate Journal Page 0771 SB 161 Section 1 of the bill remedies these problems by requiring that interest rates on judgments and prejudgment interest be set at the market rate for the sale of federal treasury bills. The bill would continue to allow individuals to establish a different interest rate on judgment by agreement, so long as the rate is not usurious, under state law. Section 1 of the bill also makes changes relating to the calculation of interest. Section 2 of the bill changes the interest rate payable by the state on refunds of overpaid taxes under AS43 and natural resources royalties and net profit shares under AS38. The bill amends AS38.05.135(e) and AS43.05.280(a) by reducing the interest rate payable by the state on refunds of these overpaid taxes, royalties, and net profit shares from five points to two points over the quarterly Federal Reserve discount rate. The present five percentage points over the Federal Reserve discount rate for both underpayment and overpayment was designed as an across-the-board interest rate increase to discourage underpayment of these sums by those obligated to make those payments. While having that intended effect, it is also establishing the state as a favorable depository of investment funds yielding a much higher rate of interest than any other savings in banking institutions. The payment of those high yields is coming directly out of the state treasury and is not a prudent use of state resources in these years of declining available state revenue. This bill would leave in place the provisions that discourage underpayment to the state, while removing the incentive to achieve high yields by overpaying. Also, the bill protects taxpayers in that if the overpayment was made in response to a correction made by the applicable department, the state would pay a higher interest rate, as already provided in statute. I urge your prompt consideration and passage of this bill. Sincerely, /s/ Walter J. Hickel Governor