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School Teachers Prevail in State Fiscal Free-for-All
By David R. Doerr

Wonder what happened to much of the state's $12 billion revenue windfall this year? You need look no farther than your local school classroom. The big winners in this year's fiscal free-for-all in Sacramento were the more than 350,000 certificated teachers who walked away with an impressive array of legislative goodies.

Teachers hit the big bonanza in this year's state budget. According to the Legislative Analyst's Office, Proposition 98 spending for K-14 education in 2000-01 was increased to approximately $42 billion, up $5 billion from last year's state budget, a 13 percent increase. The Proposition 98 spending amounts to $6,694 per K-12 student. In addition, the budget contains significant funds for education outside of Proposition 98, which voters approved in 1988 to constitutionally guarantee education's share of the state general fund.

Most of the new monies for K-12 schools were provided for normal enrollment growth and inflation ($1.6 billion), and for a revenue limit "deficit reduction" ($1.84 billion).

Shrewd planning appears to have paid off for the teachers' union, the California Teachers Association. Many in the Legislature assumed the additional "deficit reduction" money would be used by school districts to improve educational programs. The end-of-session summary by the Assembly Education Committee said the "deficit reduction" funds of $1.8 billion in the school aid package produced "discretionary" revenue for schools.

The Sacramento Bee reported that, in many districts, collective bargaining contracts required all of the new "deficit reduction" money to go directly to employee salaries. "I don't think it's accurate to say it's discretionary when you know that many, many school districts have it in their bargaining agreements that it's going to salaries," Jim Sweeney, superintendent of the Sacramento City Unified School District, told The Bee.

The key was the wording accompanying the increased state dollars. It was described as a repayment to schools for cost-of-living increases withheld during the recession of the early 1990s. Labor contracts negotiated earlier with no expectation that such wealth would be forthcoming promised that any state money earmarked for deficit reduction would go to salary increases. These salary increases were on top of cost-of-living raises in current contracts.

State and local teacher unions carefully coordinated efforts to get the right language in local contracts and in the language of the state legislation providing the increased aid.

As a result, a number of school districts this summer were in the embarrassing situation of getting substantially more state money than they had anticipated in preliminary budgets, yet having to make cuts in programs to balance their budgets. The 48,000-student San Juan Unified School District in suburban Sacramento County is an example of this.

David Sanchez, secretary-treasurer of the California Teachers Association, was quoted by The Bee as saying the union advised local units to seek the contingency clauses. He said members of the union dined with the governor prior to the announcement of the budget windfall and told him the use of funds for school deficit reduction for teachers' salaries would help attract and retain quality teachers.

David R. Doerr 
is Cal-Tax's chief tax consultant. He also has served on the San Juan Unified School District Board of Trustees.

By September, the San Jose Mercury News was quoting teacher union sources that teachers around the state were seeing big pay raises - boosts averaging 10 percent to 14 percent for this school year. The newspaper said the raises in many districts were dictated by "contingency" or "pass-through" language in bargaining contracts. Union representatives said their raises were necessary to attract good teachers, although most of the dollars will go to pay existing teachers substantially more. The Mercury News said that San Francisco and Oakland schools, among others, had to cut other programs. Oakland laid off eight employees as a result of nearly 14 percent pay increases.

In the aftermath of an 11 percent pay raise, the Fresno Bee reported that the Fresno Unified School District in October placed a district-wide freeze on spending and asked administrators to recommend budget cuts amounting to 6 percent.

Teachers also won a number of other benefits during this year's legislative session, to wit:

• Teacher tax cut. For the first time in 60 years, an occupational group was given preferential personal income tax treatment in California. Assembly Bill 2879 (Jackson) provides tax credits to teachers that could amount to up to one-half of the tax on teacher income. The credits range from $250 to $1,500 per year, depending on length of service. The benefit to teachers in terms of tax savings is estimated to be $218 million a year.
• Beginning teacher salaries. School districts must increase beginning teacher salaries to $34,000 per year. Senate Bill 1643 (O'Connell) adds $6 per average daily attendance to the schools' revenue limits to pay for this increase. The California Teachers Association has reported that it has obtained an oral legal opinion from the legislative counsel that districts already above the $34,000 plateau for first-year teachers must use the $6 per ADA to enhance teachers' salaries. This program costs the state an additional $55 million a year.
• Performance awards. The Legislature augmented by $50 million (a 100 percent increase) the Certificated Staff Performance Incentive Act that provides bonuses from $5,000 to $25,000 to teachers in low-performing schools that increase test scores by specified amounts. The governor's performance awards program, rewarding schools that increase test scores with up to $150 per student, was augmented by $35 million. Some of these added funds could go to teachers (SB 1667, Alpert).
• Retired teacher earning cap lifted. The cap on earnings (of $19,050) by teachers who retired prior to 2000 is lifted if the teacher provides direct instruction in K-12 grades (SB 1666, Alarcón). AB 1736 (Ducheny) also eliminates the earning cap for teachers who retire prior to July 1, 2000 and return to the classroom. AB 1733 (Wildman) removes the earning cap for retired teachers who first return to the classroom after one year of retirement and increases the cap to $22,000 for others.
• Bonus for teaching in low-performing schools. Teachers who have certification from the National Board for Professional Teaching Standards and agree to teach in a low-performing school for four years receive a $20,000 bonus (SB 1666, Alarcón).
• Signing bonuses for teachers. Taking a page from professional sports and the private sector, the concept of signing bonuses for teachers has been established. A program of block grants to low-performing schools has been established to provide incentives for teacher recruitment, including signing bonuses (SB 1666, Alarcón).
• Retired teacher pension increase. Retired teachers will get a 1 percent to 6 percent boost in their retirement allowances, depending on when they retired (AB 429, Correa). According to the Senate floor analysis of the bill, the present value cost of this benefit is $889 million.
• Retirement: one-year final compensation. Teachers with more than 25 years of service will have their retirement benefits based on their highest salary for one-year, rather than three years (AB 821, Correa). The total present value of the long-term cost of this benefit, according to the Senate floor analysis, is $4 billion.
• Minimum retirement allowance for teachers. The eligibility for the minimum teacher retirement benefit of $15,000 per year ($20,000 for those with 30 years of service) is expanded to include teachers who retired before age 55, retired as inactive members, retired prior to March 21, 1974 with 19.5 years of service, retired after March 21, 1974 who had enough sick leave to have a total of 20 years of service, or who were disabled prior to retirement, but would have had at least 20 years of service had they worked to age 60 (SB 1505, Burton). This benefit is estimated to have a present value cost of $89 million.
• Work for state, stay in STRS. Teachers who go to work for the state in a job with a bargaining unit representing educational employees can elect to stay in the teachers' retirement system, rather than switch to the Public Employees' Retirement System (SB 1694, Ortiz). The Senate floor analysis said that requiring teachers who go to work for the state to join PERS could "adversely" affect their teacher retirement.
• New tax-deferred annuity for teachers. A new benefit program for teachers - a "defined benefit supplement program" - was created by AB 1509 (Machado). This legislation creates a new tax-deferred annuity for teachers equal to 2 percent of teacher salaries a year. The benefits would be paid by the retirement system at no cost to teachers. The total cost of the benefit over the period is estimated to be $2.9 billion.
• Longevity retirement bonus. Teachers with more than 30 years of service who retire after January 1, 2001 get additional retirement bonuses. For someone with 30 years, the bonus is $200; for 31 years, it is $300. For 32 or more years, the retirement bonus is $400 (AB 1933, Strom-Martin). Present value of total long-term cost is $1.8 billion.
• Retirement income expansion. Compensation to teachers in excess of the full-time equivalent for the position, such as stipends for departmental chairs, etc., (AB 2700, Lempert), is to be included in the computation for the special defined benefit supplemental (DBS) program. The contributions that both the teacher and school district make for service over and above salary schedule compensation will be paid to the teacher's DBS account and returned to the teacher along with other funds in the account on retirement or other separation from teaching.
• Medicare premiums paid. Effective July 1, 2001, the teachers' retirement system will be required to pay to the Federal Health Care Financing System the Medicare Part A premium for members who retired prior to 2001 and are ineligible for Medicare without payment of a Part A premium (SB 1435, Johnston). Teachers have not had to pay the 1.45 percent Medicare payroll tax if they were hired before April 1, 1986. The cost of this benefit is $1.25 billion over 15 years.
• Professional development programs. The state budget passed last summer contains $49 million to pay teachers attending the California Professional Development Institute for their costs, travel, lodging and other expenses.

At a meeting of the State Teachers' Retirement System board on September 7, Bill Collins, a lobbyist for the California Teachers Association, said, "People are ecstatic" about the enhanced retirement benefit package. Loretta Toggenburger, a member from the Los Angeles area, thanked the board and members for working together to get the enhanced benefit package but urged them not to rest on their laurels. She said there are other things that members can start pushing for next year.

STRS Chair Emma Zink agreed and said, "We will continue to work for more and better benefits." The Bee reported that the enhanced retirement benefit package is valued at $11.5 billion and will use up STRS' entire actuarial surplus.

Taking a page from professional sports and the private sector, the concept of signing bonuses for teachers has been established.

The Legislature created a new tax-deferred annuity for teachers equal to 2 percent of teacher salaries a year. The benefits would be paid by the retirement system at no cost to teachers.