Relates to rates of interest paid by certain governmental entities

Prejudgment interest at such a rate places a particularly onerous and unfair financial burden on civil defendants because it starts to accrue even before the plaintiff commences an action. See CPLR 5001(b) (stating that the clerk computes interest from the earliest ascertainable date that the cause of action exists). The specter of a windfall rate over an indefinite and elongated period of time artificially inflates settlement values and leads to exorbitant judgments. Already strained public fiscs are thereby exposed to additional unwarranted liabilities.

The trial courts do have the recognized discretion to set an interest rate lower than 9% upon a proper showing that diverse and prudent investment vehicles would not net such a rate of return. See generally Denio v. State of New York, 7 N.Y.3d 159 (2006); Rodriguez v. New York City Housing Authority, 91 N.Y.2d 76 (1997). However, as a practical matter, courts infrequently invoke that discretion, and typically apply a 9% percent rate.

This bill's application of a predictable rate of interest moored to the market embraces sound economics and protects the public fisc from undue windfalls. Further, its guarantee that all similarly situated litigants are subject to the same and a fair rate of interest in all cases promotes fundamental fairness.

Congress has determined that the post judgment interest awarded by federal courts shall be at a "rate equal to the weekly average 1-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." 28 U.S.C.A. § 1961(a). Such an indicator accords with sound financial market principles and should apply wherever interest is available. The purpose of interest is to compensate persons for the lost opportunity to use or invest money elsewhere. Markets apply two fundamental variables to capital in determining the rate of return that one may obtain for another's use of its capital: (1) the time period for which the capital will be used and (2) the risk the lender incurs as to the return of that capital. The greater the risk, the higher the interest rate; the lower the risk, the lower the interest rate. In situations involving damage awards against the City and other governmental entities in civil litigation, the plaintiff incurs no risk as to the return of capital. The governmental entity will pay the verdict as surely as the U.S. Government will return capital loaned to it in the form of a U.S. Treasury Bill. Indeed, in his commentary on Civil Practice Law and Rules § 5004, pertaining to the rate of interest on judgments, David Siegel posited that "the use of a conservative standard like the Treasury investment, measured by its relevant figures for the periods involved in the particular case, does seem an appropriate gauge, other things being equal."

Likewise, the appropriate rate of return on the capital paid from a verdict against the City and other governmental entities should be tied to the rate of return on U.S. Treasury Bills. The City and other governmental entities are constrained in the types of instruments in which they may invest their revenues. For example, Section 11 of the General Municipal Law restricts municipal investments to federal or state bonds and a few other short-term limited-risk investments. The City's average rate of return on its investments ranged from a high of 6.24% in 2000 to approximately 0.16% in 2015. At the same time, the one-year U.S. Treasury bill rate dropped from 6.11% in 2000 to 0.32% in 2015. The difference between the City's investment return rate and the one-year U.S. Treasury bill rate has consistently remained marginal. The City would not, therefore, reap a windfall by tying the interest rate to the one-year U.S. Treasury bill rate and the plaintiffs would be obtaining a rate of return recognized by sound financial market risk/loss principles. See Karagiannis v. New York State Thruway Authority, 209 A.D.2d 993 (4th Dept., 1994); Hancock v. 350 Hull Realty Corp., N.Y.L.J. 2/28/95 at p. 30 (Sup. Ct., Bronx Co.), aff'd on other ground s, 225 A.D.2d 365 (1st Dept., 1996); Reid v. County of Nassau, 156 Misc.2d 533, 535-36 (Sup. Ct., Nassau Co., 1993).

Almost one third of the City's judgment and claims budget is spent on cases with judgments and settlements in excess of $1 million. The difference in interest payments can be significant. For example, in a case involving what may be a $5 million payout, the difference between interest at 0.13% and 9% is $443,500 per year, or $2,217,500 over five years. A 300 basis point difference on the interest rate would have a substantial effect on the public fisc. In a similar vein, the 9% rate applied while a post-judgment appeal is pending can eliminate the savings that the City otherwise would have realized from a damage award that is reduced by the appellate court.

Fiscal implications

New York City estimates that the savings to the City attributable to the measure set forth in this bill would be approximately $5 million in Fiscal Year 2017 in prejudgment interest and $1 million in post judgment interest. Other public entities would similarly save significant sums.

Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.