### 1996 D e c i sion s O p inion s of the U nit e d
S t a t e s C our t of Appe al s for the Thir d C ir c uit

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. e du/thir dc ir c uit_1996/134IN THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________ NO. 95-3007

___________

LAURA RANKIN; DAVID RANKIN; STACY JOHNSON; ALICE BONACCI, Appellants,

v.

SAMUEL M. DESARNO; ALICE DESARNO; COUNTY OF ALLEGHENY; PENN
HILLS SCHOOL DISTRICT

GARY J. GAERTNER,

Trustee

COUNTY OF ALLEG HENY and

PENN HILLS SCHO OL DISTRICT,

Appellants

.

___________ NO. 95-3037

___________

LAURA RANKIN; DAVID RANKIN; STACY JOHNSON; ALICE BONACCI

v.

SAMUEL M. DESARNO; ALICE DESARNO; COUNTY OF ALLEGHENY; PENN HILLS SCHOOL DIS TRICT

GARY J. GAERTNER,

Trustee

STACY JOHNSON,

Appellant.

___________

NO. 95-3011

___________COUNTY OF ALLEGHENY;

PENN HILLS SCHOOL DISTRICT,

Appellants,

v.

SAMUEL M. DESARNO; ALICE DESARNO

GARY J. GAERTNER, ESQUIRE,

Trustee.

___________ On appeal from the United States District Court for the Western District of Pennsylvan ia (Civil Action Nos. 94-982 and 94-1174 )

__________

Argued: November 20, 1995

BEFORE: BECKER, SAROKIN and WELLFORD, Circuit Judges

___________

(Opinion filed July 30, 1996)

Michael G. McCabe, Esq. (ARGUED) David W. Ross, Esq. Goehring, Rutter & Boehm 1424 Frick Building Pittsburgh, PA 15219

Attorneys for the County of Allegheny and the Penn Hills School District, Appellants in Nos. 95-3007 and 95-3011

Catherine T. Martin, Esq. (ARGUED) Daniel L. Haller, Esq. Maria Pekich, Esq. Neighborhood Legal Services Association
Firm No. 213
928 Penn Avenue Pittsburgh, PA 15222

Attorneys for Stacy Johnson, Appellant in No. 95-3037

Daniel J. Gates, Esq. Edgardo D. Santillan, Esq. Law Offices of Daniel J. Gates, P.C. 828 Frick BuildingPittsburgh, PA 15219

Attorneys for the Debtors
Samuel M. DeSarno and Alice DeSarno

__________

OPINION OF THE COURT

__________

WELLFORD, Circuit Judge:

I. OVERVIEW The primary dispute in this appeal concern s the rate of postpetition interest to which plaintiffs, the Penn Hills School District and Alle gheny County, Pennsylvania, are entitled in connection with their oversecured prepetition tax c laims against the defendants, numerous Chapter Thirteen bankruptcy debtors. Plaintiffs contend th at interest should accrue at the applicable rates set forth in the Pennsylvania Municipal Code, and t hus, that the bankruptcy and district courts erred in approving defendants' bankruptcy plans, wh ich proposed to pay postpetition interest at a substantially lesser rate. Having carefully cons idered this issue and the others presented in this appeal, we AFFIRM in part and REVERSE in part.

II. STATEMENT OF THE CASE Samuel and Alice DeSarno, Laura and David Rankin, Stacy Johnson,
and Alice
Bonacci defaulted on real estate taxes owed to Alle gheny County and the
Penn Hills School
District. Because the salient facts are identical as to each defendant, we limit our background
discussion to the DeSarnos. After the Desarnos def aulted on their tax obligations, plaintiffs filed secured claims against their principal residence in the approximate amount of $4,500. Under Pennsylvania law, these claims constitute first lie ns on the property and plaintiffs are entitled to receive interest on the underlying debts at certain statutorily prescribed
rates. The DeSarnos' residence is worth many times the amount of the pri ncipal debt plus interest; thus, plaintiffs' claims are substantially oversecured. In June 1993, to avoid a foreclosure on th eir house, the DeSarnos filed a voluntary petition for bankruptcy under Chapter Thirteen of t he United States Bankruptcy Code. The DeSarnos subsequently filed a plan proposing to pay in full plaintiffs' prepetition claims (100percent of the principal debt plus interest at the statutory rates), but

proposing to pay postpetitioninterest at a rate muc h lower than those prescribed by the relevant Pennsylvania statutes. In November 1993, the bankruptcy court con firmed the DeSarnos' plan subject to a determination of the appropriate postpetition int erest rate. The bankruptcy court directed the parties to file briefs supporting their respective positions, but did not schedule oral argument or conduct an evidentiary hearing on the matter. Alle gheny County and Penn Hills argued at the confirmation hearing that they were entitled to int erest at twelve and ten percent per annum, respectively, pursuant to Pennsylvania statutes. T he DeSarnos, on the other hand, argued that plaintiffs' postpetition claims were modifiable und er 11 U.S.C.  1322(b)(2) and that postpetition
interest should be set to accrue at a "reasonable" rate, as opposed to the statutory rates. In May 1994, the bankruptcy court confirme d the DeSarnos' plan in its entirety, holding that plaintiffs' claims were modifiable and that the proposed rate of postpetition interest
met and exceeded the rate that the court determined to be reasonable. Thereafter, plaintiffs sought review of the plan in the district court. Notwiths tanding initial concern over the bankruptcy court's failure to hold an evidentiary hearing to a id in its determination of an appropriate interest rate, the district court affirmed the bankruptcy co urt's decision. This timely appeal ensued. Defendant Stacy Johnson subsequently filed a cross- appeal challenging the applicable rate of prepetition interest for Allegheny County.

III. ISSUES ON APPEAL The following issues are before us in this appeal and crossappeal: (1) whether it was error to determine that Allegheny County is ent itled under Pennsylvania statutory law to prepetition interest at a rate of twelve percent pe r annum; (2) whether
the lower courts erred in holding that a tax claim secured by a statutory lie n on a Chapter Thirteen debtor's principal residence is modifiable pursuant to 11 U.S.C.  1322(b)(2); and (3) if so,
whether the reduced rate of postpetition interest approved by the lower courts provides plaintiffs with the "present value" of their claims pursuant to 11 U.S.C.  1325(a)(5)(B)(ii).

IV. STANDARD OF REVIEW We review the bankruptcy court's findings of fact for clear
error. Sharon SteelCorp. v. National Fuel Gas Distrib. Corp., 872 F.2d 36, 38 (3d Cir. 1989).

We exercise plenary review, however, in regard to the bankruptcy court' s "choice, application and interpretation of legal precepts." Id. at 38-39.

V. DISCUSSION A. Prepetition Interest We first address whether the bankruptcy co urt correctly determined that Allegheny County is entitled to prepetition interest on its t ax claims at a rate of twelve percent under Pennsylvania law. Although most of the defendants have conceded this point, defendant Johnson argues that the county is entitled to a maximum int erest rate of only ten percent. We disagree.
Pursuant to 72 Pa. Cons. Stat. Ann.  5648, "second class" Pennsylvania counties are entitled to interest on all county tax delinquencies and may adopt a maximum interest rate of twelve percent per annum on these debts. I t is undisputed that Allegheny County is the only "second class" county for purposes of  5648 and that its County
Commissioners have chosen to charge tax debtors the maximum amount allowed un der that statute. Nevertheless, Johnson argues that  5648 conflicts with and is governed by 53 Pa. Cons . Stat.

Ann.  7143, which provides that interest claims made by municipalitie s for unpaid taxes cannot exceed ten percent

per annum. We agree that  7143 conflicts with  5648, but we do not find 
7143 to be controlling. Notwithstanding Johnson's assertions to the contrary,  5648 is the more specific of the two statutes because it deals with tax delinque ncies in second class counties. Further, the ten percent interest rate of  7143, established by an amendment dated October 29, 1981, predatesthe twelve percent interest rate of  5648, which was established on May 5, 1982. See Pa. Laws 319, No. 113,  1; Pa. Laws 372, No. 106,  1. Section 1933 of the Pennsylvania Statutory Construction Act of 1972 provides:

Whenever a general provision in a sta tute shall be in conflict with a special provision in the same or another statute, the two shall be con strued, if possible, so that effect may be given to both. If the conflict between the two provisions i s irreconcilable, the special provisions shall prevail and shall be construed as an exception to the gene ral provision, unless the general provision shall be enacted later
and it shall be the manifest intentio n of the General Assembly that such general provisions shall prevail.1 Pa. Cons. Stat. Ann.  1933 (emphasis added). Based on  1993, the

special provision allowing twelve percent interest to second class co unties embodied in  5648 prevails over the general provision of  7143 and must be construed as an exception to it. To summarize,  5648 is inconsistent with  7143 because it specifically empowers the Allegheny County commissioners to establish an interest rate of up to twelve percent on delinquent taxes. Section 7143, on the other hand, provides for a maximum rate of only ten percent. Thus, the two statutes are in conflict be cause they authorize
different rates. The commissioners, taking advantage of the full authori zation of  5648, established the applicable rate at twelve percent. We believe that  5648--the later, more specific
statute--controls here. Accordingly, we hold that Allegheny County is entit led to prepetition
interest at a rate of twelve percent per annum under  5648 and thus AFFIRM the ruling of the lower
courts on that issue.

B. Postpetition Interest Turning to the next issue, we note that th e parties agree that plaintiffs are entitled to some amount of postpetition interest on their cl aims, but they disagree
as to the rate at which such interest should accrue. In this regard, plain tiffs first argue that
the lower courts erred in holding that their claims to postpetition interest at the statutory rates
are modifiable under 11

U.S.C.  1322(b)(2). Alternatively, plaintiffs assert that the confirmed
interest rates are insufficient to provide them with the present value of their allowed
secured claims under 11

U.S.C.  1325(a)(5)(B)(ii). We address each of these conte ntions in turn.

(1) 11 U.S.C.  1322(b)(2) Section 1322(b)(2) of the Bankruptcy Code provides that Chapter Thirteen plans may "modify the rights of holders of secured claims , other than a claim secured only by a security interest in real property that is the debtor's prin cipal residence." 11

U.S.C.  1322(b)(2) (emphasis added). Defendants concede that plaintif fs' claims are secured by liens on their principal residences. Therefore, the key issue is whether those liens constitute "security interests" for purposes of the antimodification provision of  1322(b)(2). The Bankruptcy Code defines "security inte rest" as "a lien created by an agreement." 11 U.S.C.  101(51) (emphasis added). In contrast, the Code provides that the term"statutory lien" means a "lien arising solely by fo rce of a statute on

specified circumstances or conditions . . . but does not include security inte rest or judicial lien."
11 U.S.C.  101(53) (emphases added). Because plaintiffs' tax liens ar ose under state statute, and not from a consensual or voluntary agreement with the taxpayer defendants, we concur in the bankruptcy court's ruling that those liens are not "security i nterests" for purposes
of  1322(b)(2). The foregoing interpretation of  1322(b)(2) is supported by substantial authority from other jurisdictions. See, e.g., In re DeMaggi o, 175 B.R. 144, 146-47 (Bankr. D.N.H. 1994) (holding that plain language and statutory hi story of  1322(b)(2)
establish that
nonconsensual tax liens do not fall within antimodi fication provision of that statute); In re Sabec, 137 B.R. 659, 667-68 (Bankr. W.D. Mich. 1992) (find ing antimodification provision of  1322(b)(2) inapplicable because creditor's interest in the principal
residence of the debtor was a "lien," rather than a "security interest," based on the fact that it arose nonconsensually under state tax act); In re Venable, 48 B.R. 853, 856 (Bankr. S .D.N.Y. 1985) (holding that city's tax lien on debtor's principal residence was modifiable desp ite  1322(b)(2) because not consensual, and thus, not a "security interest"); In re Mitchell, 3 9 B.R. 696, 700 (Bankr. D. Or. 1984) (finding IRS lien on debtor's principal residence modifiable because statutory, not created by agreement as required by  1322(b)(2)); In re Seel, 22 B.R. 692, 695-96 (Bank r. D. Kan. 1982) (holding modifiable a mechanic's lien on debtor's principle residence because it was a "statutory lien"). Nevertheless, plaintiffs urge us to hold that statu tory tax liens on principal residences are not
modifiable under  1322(b)(2) because Congress has historically made explicit reference to tax liens in provisions of the Bankruptcy Code intended to affect such liens.
Plaintiffs further assert that the existence of public policy concerns analog ous to those invoked by Congress in exempting liens for unpaid postpetition property taxes from t he automatic stay indicates that Congress did
not mean for tax liens to be modifiable under  1322(b)(2). In light of the plain language of  1322(b)(2), however, we must decline plaintiffs' in vitation to speculate
as to the intent of Congress in this context. "Where the statutory lan guage is clear, our
"'sole function . . . is to enforce it according to its terms.'" Rake v. Wade, 508 U.S. 464, 471 (1993) (quoting UnitedStates v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)).

(2) 11 U.S.C.  1325(a)(5)(B)(ii) Our conclusion that plaintiffs' claims are modifiable under  1322(b)(2) does not dispose of this appeal. We must also determine whe ther the postpetition
interest rate confirmed by the lower courts passes muster under 11 U.S.C.  1325(a)(5)(B)(ii). In a Chapter 13 bankruptcy, the debtor is given the opportunity to retain property which
would otherwise be subject to foreclosure by secured creditors. "In e xchange for giving the debtor a right to continue possession of the property,  1325(a)(5)(B) directs two things: (i) the
secured creditor shall retain a continuing lien on the property; and (ii) the sec ured creditor shall
receive from the debtor 'the value, as of the effective date of the plan, of suc h property to be distributed under the plan on account of such claim [which shall be] not less tha n the allowed amount of
such claim.'" GMAC v. Jones, 999 F.2d 63, 66 (3d Cir. 1993) (quoting 1 1 U.S.C.  1325(a)(5)(B)(ii)). The latter provision requires that the payments to the secured creditor have a "present value" equal to the
creditor's allowed secured claim. 5 Collier on Ban kruptcy  1325.06[4][b][iii][B] (15th ed. 1982). Present value is a market rate concept, det ermined by the use of
an interest rate which fairly compensates the creditor for not receiving t he full amount of its secured claim upon confirmation of the debtor's plan. There is wide d isagreement, however,
as to what constitutes an appropriate rate of interest in this context. S ee In re Mitchell, 39 B.R. at 700. Although this court has posited a framework for determining an ap propriate interest rate
under  1325(a)(5)(B)(ii) in the context of commercial cred itors, neither this court nor the Supreme Court
has addressed that issue in the context of nonconse nsual tax lien creditors such as plaintiffs.

In the case at bar, the bankruptcy court b egan its  1325(a) analysis with the statutory interest rates, but dismissed them as bei ng in the nature of a penalty. According to the court, the statutory rates were raised by the Penns ylvania Legislature from six percent to their present levels in response to the extremely high co mmercial interest rates
of the late 1970's and early 1980's. In the court's view, the state's pur pose in raising the statutory rates was to "coerce and encourage prompt payment of taxes in competitio n with other higher
commercial rates."Having rejected the statutory rates, the b ankruptcy court

attempted to determine a more reasonable interest rate, ultimately conclud ing that the appropriate rate under  1325(a)(5)(B)(ii) was "the reasonable cost of inter est to the [plaintiffs], as of the effective date of the plan, over a 60 month period." Consulting publ ished historical interest rates for municipal bonds, the court determined that, at a minimum, pos tpetition interest should accrue at 4.05 percent for Allegheny County and 4.30 percent for Penn Hill s. Since defendants' plans proposed to pay postpetition interest at seven percent per annum, t hey were confirmed. Plaintiffs contend that the bankruptcy cou rt's rejection of the statutory rates was erroneous. In support of their position, plaintiff s rely principally upon our previously cited decision in Jones, wherein we addressed the issue o f interest rates under
 1325(a) in the context of a commercial creditor. In Jones, General Motors Acceptance Corporation ("GMAC") filed secured claims against a number of Chapter 13 debto rs who, prior to taking bankruptcy, had purchased GMC trucks and defaulted on their financi ng obligations. Jones,
999 F.2d at 65. GMAC subsequently objected to the debtors' bankrupt cy plans on grounds that the proposed interest rates were too low to provide it with the present value of its
claims under  1325(a)(5)(B)(ii). Id. at 66. Reversing the bankruptcy and district cour ts, this court held
that the interest rate should be determined with reference to the purpose behind  1325(a)(5)(B)(ii): "to put the secured creditor in an economic position equivalent to the one it would have occupied had it received the allowed secured amount immediately, thus terminatin g the relationship
between the creditor and
the debtor." Id. at 66-67. The Jones court then r ejected the bankruptcy
court's "cost of funds" approach, which looks to the rate at which the cred itor can borrow funds, as falling short of this statutory objective by failing to account for: (1) the cost to the creditor of sustaining its lending relationship with the debtor past the point contemp lated in the original agreement; and (2) the expectation of commercial creditors to make a profi t when extending credit. Id. at 67, 69.

Ultimately, the Jones court concluded that a "coerced loan" theory should provide the starting point for determining interest rates u nder  1325(a)(5)(B)(ii). Id. at 67. Thus, thecourt held that the appropriate rate of interest is "that which the

secured creditor would charge, at the effective date of the plan, for a loan simil ar in character, amount
and duration to the credit which the creditor will be required to extend under the plan." Id. at 65 (footnote added). According to the court, this approach, unlike the c ost of funds method, closely approximates the creditor's immediate liquidation position because i t recognizes that
creditors incur costs associated
with the coerced extension of credit and because it incorporates a consideration of profit into the
determination of the  1325(a) interest rate. Id. at 67-69. The court
further found the coerced loan approach appealing because it would reduce the litigation and transaction costs of Chapter 13 cases due to the fact that "regularly maintained documents of the
creditor should make it possible for the debtor and creditor to stipulate o n the interest rate the creditor would charge for a new loan of similar character, amount and duratio n." Id. at 70. Plaintiffs in the case at bar make two arg uments based on Jones. First, they contend that the plain language of that decision re quires that interest in the present case be set to accrue at the rates that they charge nonbankrupt, d elinquent taxpayers (i.e., the statutory rates). Second, plaintiffs assert that the bankruptcy court erred in applying a cost of funds approach because that approach was specifically rejected in Jones. We agree with plaintiffs that the bankruptcy court's analysis was flawed. In our view, the district court plainly er red by looking solely to plaintiffs' cost of funds in assessing the appropriateness of the propo sed postpetition
interest rates in this case. As the Ninth Circuit has noted, such an approach force s a governmental
creditor to

incur an unconditional obligation to repay the money it was required to borrow . . . in ex change [for] only an inherently risky promise by the de btor to repay the same amount over the applicable t ime period at essentially the same rate paid by the government on its obligation.

In re Camino Real Landscape Maint. Contractors, Inc ., 818 F.2d 1503, 1506 (9th Cir. 1987) (citation omitted). Thus, the governmental credito r is "worse off as a result of the exchange." Id. Moreover, "there is no indication that Congres s meant to subsidize debtors by making available to them the government's own favorable ra te of interest." Id. Thus, we hold that forplaintiffs to be properly compensated, consistent w ith Jones, postpetition

interest rates must be set in accordance with the municipalities' costs of maintaining their creditor relationship. Since municipalities are not for-profit le nding institutions and do not regularly extend loans that can be used to determine the appr opriate rate of interest, the case at bar is not on all-fours with Jones. Nevertheless, we do not b elieve that Jones is totally inapplicable in this situation, despite GMAC's status as a for-profit en tity, or that the "cost of funds" approach would be proper if applied to the debtor instead of the c reditor. Therefore, the principles of Jones must be given effect, even if it is not factually identi cal. We believe that the closest analog to the market loan in Jones is the statutory interest rate here. While the analogy is not perfe ct, it is sufficient: an entity forced to delay payment that it is entitled to receive is, in effec t, extending a loan.
And the rate that the municipality charges for those that coerce loans by not paying their property tax bills is twelve percent. In fact, as the difficulties in arriving at another rate have shown, the statutory rate is really the only practical and reasonable rate to ap ply. The statutory
rate also serves the administrative efficiency goal of establishing a re adily ascertainable
"market" rate that will not require the time and expense of case-by-case litiga tion and potentially
inconsistent results.
Political and financial market forces will generally operate to keep the statutory rate reasonable. The rate is set by elected officials a ccountable to citizens who, after all, must balance their desire to make their neighbors pay their prop erty taxes with the consideration that they themselves may be in default some day. In addition , the financial market might provide the best check against oppressive rates. If a debtor can, i n fact, do better than the statutory rate, he or she will rationally do what consumers normally do when rates (for instance, mortgage notes) become higher than the market. The debtor will "refinance " by obtaining the new
loan at the lower available rate, using the funds to pay off the old loan. Indeed, the statutory rate at issue in this case--twelve percent--is not unreasonable. Credit card companies regularly charge their customers, who are not even high credit risks, inte rest at rates as high as eighteen percent. The debtors in this case, of course, are in bankruptcy and, although the municipality currently holds liens that are oversecured, property values can dec line.In support of our holding, we note that nu merous courts have held

that
nonconsensual oversecured creditors are entitled to receive the rates of interest dictated by the statutes under which their liens arose, unless thos e rates constitute a penalty. See, e.g., Galveston
Ind. Sch. Dist. v. Heartland Fed. Sav. & Loan Ass'n , 159 B.R. 198, 204 (Bankr. S.D. Tex. 1993); see also In re Parr Meadows Racing Ass'n, 88 0 F.2d 1540, 1549 (2d Cir. 1989), cert. denied sub nom., Suffolk County Treasurer v. Barr, 493 U.S. 1058 (1990). Although the bankruptcy court initially determined that the stat utory rates at issue in this appeal are in the nature of a penalty, we find this decision to be in error. See Meilink v. Unemployment Reserves Commission, 314 U.S. 564 (1942). In Meilink, a una nimous Supreme Court
held that a statutorily imposed interest rate of twelve percent on debts owed to a state's unemployment fund did not constitute a penalty within the meaning of the Bankruptcy Code. In that regard, the Court
stated: It is common knowledge that inte rest rates vary not only according to the general use value of money but also according to the hazard of p articular classes of loans. Delinquent taxpayers as a class are a poor credit risk; tax default, unless an i ncident of legitimate tax litigation, is, to the eye sensitive to credit indications, a signal of distr ess. A rate of interest on tax delinquencies which i s low in comparison to the taxpayer's borrowin g rate--if he can borrow at all--is a temptation to use the state as a convenient, if involuntary, banker by the simple practice of deferring the payment of taxes.

Another variable is the amount n ecessary to compensate for the trouble of handlin g the item. The legislature may include compensat ion to the
state for the increased costs of admi nistration in the exaction for delay in paying taxes wi thout thereby changing it from interest to penalty.

Id. at 567. We believe that Judge Sarokin's arguments for using the prime rate prove too much. If the prime rate represents the appropriate rate in the commercial marketplace, why did not the Jones court use the prime rate in that case , which, after all,
involved a commercial lender? Moreover, that the Pennsylvania legislatur e has not seen fit to change the statutory rate on delinquent tax loans for some years, in our view, does not render the twelve percent ratepenal or unreasonable. If the statutory rate, as s uggested by the

dissent, "far exceed[s] what the
Plaintiffs could obtain under current market condit ions," then the debtors (or the bankruptcy trustee) can proceed to obtain the more favorable r ate in the market.

VI. CONCLUSION Based on the foregoing, we AFFIRM the dist rict court's award of prepetition interest to Penn Hills and Allegheny County at the statutory rates of ten and twelve percent per annum, respectively. We REVERSE, however, the deci sions of the bankruptcy
court and district court on the issue of postpetition interest rates a nd hold that Penn Hills and Allegheny County are also entitled to postpetition interest at the respe ctive statutory rates. Rankin v. DeSarno, Nos. 95-3007/3011/3037

___________________________________________________ ______________ SAROKIN, Circuit Judge, concurring in part and diss enting in part: I join Parts I, II, III, IV, V.A, and V.B. (1) of the Majority's opinion. However, because I do not believe that the statutory rate sh ould apply to postpetition interest, I dissent from the Majority's analysis and conclusion in Part V.B. (2). I agree with the Majority that the "cost o f funds" approach adopted by the bankruptcy court is flawed because it under-compens ates the municipality
and it offers the debtors a windfall by enabling them, in effect, to borrow f unds from the municipality at rates that are generally available only to state entities. But because I do not agree with the Majori ty's reliance on
General Motors Acceptance Corp. v. Jones, 999 F.2d 63, 67 (3d Cir. 1993), I would reject
as well the Plaintiffs' suggestion that we apply the statutory rate to post -petition interest payments. The situation here differs from that in Jo nes in one important way: in Jones, the creditor was a commercial lender, in the business o f lending money to earn a profit. Unlike the Majority, see Majority Op., typescript at 12, I bel ieve that this difference is significant. I. The statutory rate In a market that is subject to the rigors and constraints of competition, the interest rate charged by a commercial lender (Lender A) sho uld reflect the approximate cost of capital plus transaction costs, and a small profit componen t. If interest is set at a rate that substantially exceeds Lender A's costs in order to yield greater profits, competitors
should be able to lure borrowers away from Lender A by setting their rates below that charged by
Lender A while stillearning a profit. Ultimately, the more competitive the market, the more

closely the rate will reflect the costs incurred by the lender. Therefor e, setting postpetition interest at a rate equal to the rate charged by a creditor-lender in the commer cial market should come
closest to compensating that creditor both for the non-availab ility of its capital
and for the costs of maintaining the relationship, and should therefore "put the secured
creditor in an economic position equivalent to the one it would have occupi ed had it received the
allowed secured amount immediately, thus terminating the relationship betw een the creditor and the donor." Jones, 999
F.2d at 66-67. Here, the creditors are governmental entit ies. The interest rates that they can charge "debtors" -- i.e., those who have defaulted on their tax payments - - are not constrained by competitive considerations, but imposed by statute. These rates were set
at their current level in the early 1980s, and have not been modified since. "Courts are generally in agreement that an interest rate to compute present value must be resp onsive to current
economic conditions" and "that an unchanging fixed rate established at some prior time is not appropriate in a present value analysis." In re DeMaggio, 175 B.R. 144, 150-51 (B ankr. N.H. 1994). It is easy to understand why: market rates have dropped significantly since the early 1980s. The statutory rates have not followed the commercial market's downward path and as a result "ha[ve] no
relation to current economic conditions." Id. at 151. In fact, they f ar exceed what the
Plaintiffs could obtain under current market conditions. Because they are so hig h, the statutory rates now "include a punitive element that is contrary to the purposes of the Ban kruptcy Code" and
"inimical to financial
rehabilitation of the debtor." In re Camino Real L andscape Maintenance Contractors, Inc., 818 F.2d 1503, 1507 n.2 (9th Cir. 1987). See also In r e DeMaggio, 175 B.R. at 151 (noting that "[i]nterest rates on delinquent taxes frequently in corporate a punitive aspect to discourage nonpayment."). Because statutory rates are not subject to the discipline of the market, and because considerations of deterrence may in fact warrant a rate of interest for
tax evasion that far exceeds costs, there is no reason to expect that the statut ory rates are calculated to compensate the Plaintiffs for the present value of their claims, a nd to serve the objective of section1325(a)(5)(B)(ii), which is "to put the creditor in the same position it

would have been in if it had been allowed to end the lending relationship at the point of the bankruptcy filing by repossessing the collateral." Jones, 999 F.2d at 69. There fore, I reject the approach recommended by the Plaintiffs and espoused by the Majority, and wo uld not set the postpetition interest rate at the statutory rate. II. The prime rate I would hold, instead, that the appropriat e rate to compute the present value of a claim by an oversecured government creditor pursuan t to section 1325(a)(5)(B)(ii) is the rate charged by commercial banks to prime commercial loa n customers -- that is, the prime rate -- for a loan of equivalent amount and duration. This met hod has been adopted by other courts, see, e.g., In re Jordan, 130 B.R. 185, 191 (D.N.J. 1991) ; In re Hudock, 124 B.R. 532, 534 (N.D. Ill. 1991), and it addresses most of the concerns r aised by alternative
methods. First, because it imposes a rate higher th an the municipal bond rate, it offers the Plaintiffs a measure of compensation for the variou s costs, beyond the costs of capital, incurred in the delayed collection of tax payments. Second, because it is based on a market ra te, it is sensitive to changes in the costs of borrowing in the larger economy, and derivativel y to the costs of borrowing for municipal governments as well. "Market rates are the best in dicators of the present
value of deferred payments because they are products of supply and de mand, reflecting the
interactions of economic variables that affect the cost of lending money." In re Ivey, 131 B.R. 43, 49 (Bankr. N.C. 1991). Third, because it is divorced from the sta tutory rate, it does not include a punitive element that is inimical to the purposes of bankrup tcy reorganization. Fourth, it is a readily available figure, and therefore relatively easy to compute. Fifth, it does not create any incentives f or debtors to delay payment of their real property taxes, since they would incur little benef it from such a delay. I note that the Plaintiffs had urged that we consider a variation of this approach if we rejected the statutory rate. Specifically, they had urged that we adopt the prevailing commercial market rate, but taking into account fac tors such as the term of the payout period, the value of security and the risk of default, the stat utory rate of interest,
and the characteristics ofthe debtor in each case. Clm. Brf. at 34. Several circuits have adopted

this measure of present value for debt owed to government, albeit in the co ntext of a Chapter 11 bankruptcy. See, e.g., In re Camino Real Landscape Maintenance Contractors , Inc., 818 F.2d at 1504 (holding that "the debtor must pay the government interest at the rate the debtor would pay a
commercial lender for a loan of equivalent amount and duration, consideri ng the risk of default and any security); United States v. Neal Pharmacal Co., 789 F.2d 1283, 1289 ( 8th Cir. 1986); In re
Southern States Motor Inns, Inc., 709 F.2d 647, 652-53 (11th Cir. 1983) ( same). Under this more refined approach, "the bankruptcy court must make a case-by-case dete rmination of what interest the reorganizing debtor would have to pay a creditor in order to obt ain a loan on equivalent terms in the open market." In re Camino Real Landscape Maintenance C ontractors, Inc., 818
F.2d at 1508. The approach urged upon us by the Plaintif fs is unnecessarily unwieldy, and therefore I would reject it. All three cases cited by the Plaintiffs dealt with the proper method for determining the rate of interest to be applied in c alculating deferred payments of delinquent federal taxes pursuant to 11 U.S.C.  1129(a)(9)(C). However, section 1129(a)(9)(C) applies only to unsecured claims. Therefore, the risk of default o n such debt is substantial. The risk present in the instant case is much less significant. As the DeSarnos note, the County and School District "are at very low risk of not receiving payment whil e enjoying a correspondingly high quality of security in the event of default under the Plan. T he taxing bodies both enjoy priority status as
creditors of the Debtors and are first in line to r eceive the amounts owed due to their position of possessing a statutory lien upon the Debtors' resid ence." DeSarno Brief at 24. Therefore, it is not necessary to refine our approach to account for the particular
characteristics of each debtor. I recognize that the prime rate approach, which reflects
transactions between commercial lenders and borrowers, is not a perfect fit for government creditors. As noted supra, the costs of borrowing for a municipal government a nd for a commercial lender are not identical, both with regard to their "replacement costs" -- i. e., the rate at which they can borrow funds -- and "transaction costs." In addition, the market r ate reflects the profit margin that motivates commercial lenders in the first place, but that is not a consideration for municipalities.While the commercial market rate of intere st for a low-risk,

secured loan is not a perfectly accurate measure, exactitude is not the o nly consideration -- judicial economy and efficiency are also important factors, especially i n matters involving high volume and relatively low amounts. Numerous courts, including this one, have recognized "the importance of minimizing the expense of getting a chapter 13 plan formulated and approved," Jones, 999 F.2d at 70, and therefore devising a formula that is rel atively easy to compute. I believe that the approach I suggest here strikes the best balance be tween these two priorities and satisfactorily
addresses our various other concerns as well.