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The Madison, Wis., teachers' union has reached a tentative contract settlement with the school district that would provide teachers with pay raises higher than the cap imposed by state legislators and Gov. Tommy G. Thompson.

Madison Teachers Inc. and the school board agreed last month on a 4.2 percent pay raise for teachers in each of the next two years, despite a 1992 state law that effectively capped wage increases for teachers at 3.8 percent per year.

The intent was to allow districts to avoid bargaining over teachers' wages if they offered a 3.8 percent increase--and thereby hold the line on property-tax increases in the state.

But, noting that the law applies only to bargaining units "consisting of'' professionals licensed by the state superintendent of public instruction, a state court recently ruled that the Madison union was not subject to the salary cap because some of its members are not teachers. The 2,700-member Madison union includes about 300 school nurses, coaches, and others not licensed by the state chief. (See Education Week, Dec. 15, 1993.)

Union and board officials were expected to give final approval to the agreement this month.

No Tax Refunds: The state of Virginia, which is facing a $350 million revenue shortfall, does not have to refund $470 million in state income taxes collected from federal pensioners, a state circuit-court judge ruled last week.

Saying that the 200,000 retirees could have withheld their taxes while seeking a court hearing on whether the tax was fair, Judge Donald H. Kent held that the state is not obligated to return the money.

Last June, the U.S. Supreme Court ruled that taxing federal retirees' pension benefits while exempting those of retired state employees is unconstitutional. The High Court ordered states to refund those state income taxes to federal workers or to find another solution.

Virginia changed its law and now taxes all retirees' benefits, but many federal workers in Virginia have been attempting to get refunds of taxes they paid between 1985 and 1988.

The circuit court's decision has implications for state education officials concerned that requiring states to remit large tax refunds or credits might imperil school funds.

Gov. George Allen, who took office this week, promised during his election campaign to negotiate a settlement with the pensioners. Though he recently appeared to be backing away from that promise, the Governor is "trying to seek a settlement that is fair to both the pensioners and the taxpayers,'' Ken Stroupe, the Governor's spokesman, said last week.

Lawyers for the retirees said last week that they plan to appeal the case to the Virginia Supreme Court.

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