Sen. Maria T. Pangelinan, in an interview, said to make any deficit reduction proposal work “we need to have a very low interest rate on judgments.”
She added, “It is imperative to get this bill in place before the judgment on the Retirement Fund obligation is handed down [by the court]. Otherwise, the interest on that will be enormous.”
The Senate has already passed S.B. 16-9, which remains pending in the House.
The House Ways and Means Committee has endorsed its passage, but Pangelinan said the bill sets a 9 percent interest, which she described as “ridiculous.”
“The House needs to pass S.B. 16-9 and amend it to provide for 1 percent on pre-judgment interest (which will encourage people not to delay their claims) and 2 percent on post-judgment interest (which will reduce the government’s costs),” she said.
Pangelinan, D-Saipan, noted that the U.S. Treasury pays less than 1 percent.
Instead of setting a fixed rate, “which will always be out of whack in one way or another,” Pangelinan recommends the use the LIBOR rate, “which is what all the financial institutions do.”
“This is published in the major financial newspapers and on the Internet every day. LIBOR (which stands for London Interbank Offered Rate) is the base rate…. LIBOR measures the current cost of money in international markets.”
She said the current high interest rate, in the long run, will cost the cash-strapped commonwealth government an enormous amount.
“I know that both the Legislature and the administration routinely ignore judgments and do not pay them because of the law that said funds must be appropriated; but sooner or later the courts will, through a writ of execution, force the commonwealth to pay, as it happened with [Department of Public Lands] funds,” she added.
