On Teachers’ Taxes, Davis Shows Who’s Boss

The Capitol crowd chortled when Gov. Gray Davis proposed that teachers pay no state income tax. Pundits carped. Teachers cringed.

Legislators condemned. Dead on arrival, they declared.

Not exactly. Look again. The governor’s half-baked idea has become half a loaf.

Teachers will get far more than crumbs this year. And they can thank Davis.

When the governor unveiled his public school teachers’ tax exemption plan on May 13, there was a loud outcry of outrage. People--teachers included--objected to excusing just one profession from paying the state income tax. Undeterred, Davis vowed to “stand up and fight for this puppy.”

He did fight. And he changed the puppy’s name from an exemption to a credit. As a result, roughly half--rather than all--the tax on teachers’ pay will be excused.

For spin purposes, this formally is being called a Teacher Retention Program. Cost: $250 million annually, roughly half Davis’ first proposal.

Here’s how it will work: Public school teachers with at least three years’ experience will get a $250 tax credit. The credit will gradually increase to $500 after five years’ experience, $1,000 after 10 years and $1,500 after 20. The credit will be against the tax liability only on teaching income; there’ll be a special place on the tax form to calculate that. And the credit can’t exceed 50% of the liability.

“This sends a clear message that California values teaching,” Davis says. “No other profession will enjoy this tax preference. At the same time, however, all teachers will pay taxes.

“Since it’s now in the form of a tax credit, I believe it’s more acceptable. The total exemption was too big an idea, too foreign to conventional perspective.”

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It’s still too foreign for most legislators. But they’ve consented. Caved to The Corner Office. Not a new concept.

“I’m not too wild about it,” says Assembly Speaker Bob Hertzberg (D-Sherman Oaks). “But the governor’s entitled to exercise leadership in the way he thinks appropriate. No question, this wouldn’t have happened if it wasn’t important to the governor.”

How important? “I’m not signing the budget without it,” Davis says. “I really believe it’s important to make a powerful statement that teaching matters. I’ve made that the sine qua non of this budget.”

“Neither side wants this,” he continues, referring to the political parties and the tax credit. “This has really been a sheer force of will on my part.”

That’s why, although the new $100-billion state budget still had not been completely cooked by Wednesday, the generous teachers’ benefit package was a done deal. Facing today’s legal deadline for passing a budget, legislative leaders were negotiating with the governor over transportation and welfare funding. But fighting ceased late last week over the $40-billion education piece.

And Davis was the undisputed winner. He got virtually everything he wanted: cash bonuses for teachers and schools when students show significant academic progress, merit scholarships for students regardless of their socioeconomic class, cash and housing incentives for teaching in low-performing schools, an expanded program for English learners, a lot more classroom computers, UC science institutes. . . .

That’s on top of the deal Hertzberg pulled together last month to pump an additional $1.8 billion into K-12 schools. Most of that is expected to go for higher teachers’ salaries.

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Davis insisted on further helping teachers through a tax break, rather than just kicking out more money for potential pay hikes. He argues that the state has no control over local teachers’ salaries, but it does their taxes.

So the governor and Legislature came up with a rationale--wink--for the tax credits: They will compensate teachers for the classroom supplies they personally buy, plus “professional development.”

“It’s a lot more acceptable than the tax exemption,” says Wayne Johnson, president of the California Teachers Assn.

The Legislature also added two other teacher bonuses that Davis accepted: A new starting pay of $34,000, up from the current $26,000 to $32,000 range; and a major tax-deferred savings plan.

The latter happened when Sen. Pat Johnston (D-Stockton) discovered that the teachers’ retirement system has a $15-billion surplus. So some of that cache--$380 million annually--will be used to fund a new 401(k)-type program. The average annual contribution to each teacher’s account will be $1,000, and range from $600 for beginners up to $1,250 after 20 years’ experience.

All this shows the power of a headstrong governor dealing with a Legislature of the same party--and luckily luxuriating in economic riches.