04/20/1993 05:05 PM Senate JUD

 SENATOR TAYLOR brought  SB 161  (INTEREST RATES: JUDGMENTS,                   
 TAXES, ROYALTIES) before the committee as the final order of                  
 business.  He noted there was a proposed amendment for the                    
 committee's consideration.                                                    
                                                                               
 JOE GELDHOF, Assistant Attorney General, Department of Law,                   
 speaking to Section 1, explained that it requires that                        
 interest rates on judgments and prejudgment interest be set                   
 at the market rate, which reflects the administration's belief                
 that market rates are superior to an arbitrary rate in                        
 statute.                                                                      
                                                                               
 Number 514                                                                    
                                                                               
 SENATOR DONLEY asked how the rate of treasury bonds relate                    
 to what anybody can get in an ordinary savings account.  Mr.                  
 Geldhof answered that currently the interest rate for the sale                
 of 52-week treasury bonds is between three and four percent.                  
 The yearly average of those 52-week treasury bond sales                       
 establishes the prejudgment and judgment interest rates.                      
 Senator Donley voiced concern that it was not really an                       
 appropriate rate of interest.                                                 
                                                                               
 Number 528                                                                    
                                                                               
 SENATOR HALFORD commented that in one section of the bill,                    
 it's amending the rate that the state pays out, but not                       
 amending the rate that the state gets in.  SENATOR TAYLOR                     
 asked for an explanation on overpayments on taxes, etc.                       
                                                                               
 LARRY MEYERS, Director, Income & Excise Audit Division,                       
 Department of Revenue, said Section 4 of the bill relates to                  
 amending the current rate between overpayment and                             
 underpayment.  In 1991, the interest rate was amended to                      
 provide for a floating rate based on the discount rate.  At                   
 that time, the overpayment and underpayment were at the same                  
 rates.  SB 161 adjusts the rates so that in case the state                    
 has to pay back in an overpayment that it is at the prime plus                
 2 percent.  Currently it is prime plus 5 percent, so there is                 
 a 3 percent discount between the overpayment and underpayment                 
 rates, he explained.  He said making this change is something                 
 that is consistent with approximately 30 other states,                        
 including the Internal Revenue Service.                                       
                                                                               
 SENATOR HALFORD stated he was strongly opposed to having a                    
 differential in the way we treat people.  Mr. Meyers answered                 
 that there is an equity provision in the bill that provides                   
 that if the Department of Revenue over assesses and the                       
 taxpayer pays, the department will pay them back at the same                  
 rate that they charged them.                                                  
                                                                               
 Number 568                                                                    
                                                                               
 SENATOR LITTLE asked if there are other states that have an                   
 equity provision for judgment and prejudgment interest.  Mr.                  
 Meyers responded that there are some states that don't make                   
 the distinction, and a majority of the states are going to a                  
 spread.                                                                       
                                                                               
 TAPE 93-46, SIDE B                                                            
                                                                               
 Number 001                                                                    
                                                                               
 SENATOR DONLEY stated he was supportive of Section 2 and would                
 like to see it passed, but that other sections of the bill are                
 more complicated and need additional work.                                    
                                                                               
 JOE GELDHOF pointed out that the real savings that will accrue                
 by passage of the legislation is to the state agencies,                       
 particularly the Department of Transportation and Department                  
 of Administration that routinely pay judgments which accrue                   
 judgment and prejudgment interest that in some cases is                       
 significant.  Presently, instead of funding agency programs                   
 or projects that may be more desirable, money is being                        
 deflected into judgment and prejudgment interest rates that                   
 are way over market.                                                          
                                                                               
 Number 040                                                                    
                                                                               
 SENATOR LITTLE asked for an explanation of the proposed                       
 amendment.  SENATOR TAYLOR explained that currently,                          
 prejudgment interest on personal injury litigation is figured                 
 from the date of the occurrence of the injury.  The amendment                 
 would change that to the date a written demand for payment                    
 for an injury has been sent.                                                  
                                                                               
 Number 060                                                                    
                                                                               
 SENATOR LITTLE moved amendment #1.  SENATOR DONLEY objected.                  
 After brief discussion Senator Little withdrew her motion to                  
 adopt amendment #1.                                                           
                                                                               
 Number 120                                                                    
                                                                               
 SENATOR TAYLOR said the problem that Mr. Geldhof raised is a                  
 valid concern.  The Department of Transportation, the Division                
 of Risk Management, Department of Law, etc., are currently                    
 paying very high interest rates in situations where they                      
 should be paying much lower interest rates.  However, he                      
 doesn't think the legislation has much chance of passing this                 
 legislative session.                                                          
                                                                               
 SENATOR TAYLOR closed the public hearing on SB 161 and                        
 adjourned the meeting at 6:00 p.m.