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.