Limited Taxation
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Barbara's Column
June 2001 #5

Twenty years later: Property taxes still too high,
but think where they'd be without Prop 2

by Barbara Anderson

The Salem Evening News
Friday, June 29, 2001

Once upon a time there was no Proposition 2.

Property taxes in what was then known as "Taxachusetts" were 81 percent above the national average and went up 5-6 percent, and once even 12 percent, a year.

Politicians had long ago instituted a state income tax to replace some of the property tax burden. Then they said that if the taxpayers would allow a sales tax, they could cut the property tax. Then they instituted a state lottery to reduce the property tax, so by 1980 we had an income tax, a 5 percent sales tax, a state lottery, and the third highest property taxes in the nation.

Finally the voters took matters into their own hands, putting Prop 2 on the 1980 ballot and passing it by 59-41-percent margin. The auto excise rate was cut by almost two-thirds, a rental deduction was created, and two state mandates were repealed while future unfunded mandates were forbidden. These reforms went into effect almost immediately.

The following July 1, the beginning of all communities' fiscal year, the levy limit went into effect. Property taxes in communities whose rate was higher than 2.5 percent of fair market value were cut 15 percent a year until they reached that maximum-allowable rate.

For the rest of the communities, the Prop 2 limit was the same as it is now: The annual levy -- the total amount collected in property taxes -- cannot increase more than 2 percent a year, after factoring in new growth, unless the voters choose to override or allow a debt exclusion.

If you were around back then, you probably recall the ballot battle and the months of public employee marches, bitter state budget debate, and attempted repeal measures that followed. But in the end, the Legislature came up with new local aid to lessen the impact on municipalities, and local officials went to work on implementation.

Many of them started with the education budget, which had never been subject to city council or town meeting belt-tightening because of a state mandate called "school committee fiscal autonomy" -- whatever budget amount the school committee demanded, it had to be granted. During years of declining enrollments, the school budgets grew; then Prop 2 repealed the state mandate and education budgets were temporarily brought back into line.

The Citizens Economic Research Foundation, a research arm of Citizens for Limited Taxation, the chief proponent of the ballot question, recently commissioned a report on the 20-year impact of Proposition 2. Lane & Company, which compiles a municipal database for use by the financial community in credit analyses, provided the following data presented here in constant per capita dollars from fiscal year 1982 through FY 2000:

  • The total property tax levy increased just 18.8 percent over inflation. Yet;

  • Local appropriations are 42.2 percent higher than could be accounted for by inflation alone. Local receipts including auto excise revenues, fees, and non-enterprise water and sewer charges, have increased 76 percent. State aid has increased 45.2 percent.

  • The residential levy dropped 1.6 percent. The commercial levy increased 287.5 percent, and the industrial levy, 114.2 percent. This was initially the result of voter-passed tax classification law that was being implemented during the same time period Prop 2 went into effect.

  • Despite claims that "education was devastated" by Prop 2, per-student education expenditures increased 74.4 percent over inflation between FY '82 and FY 1999.

Proposition 2 contains an override provision that allows local voters to raise their community's taxes more than the levy limit provides. This is good for democracy, but hard on taxpayers who can't afford the extra increases.

National data that showed our per capita property tax burden to be third highest in the country in 1981 dropped us as far back as 12th later that decade. But we were back up to seventh in 1996.

Our property tax burden relative to personal income was fourth highest in the nation in 1981, 22nd in 1991, then up to 15th in 1996.

Some of the increase comes from overrides and debt exclusions, but most of it is due to the "new growth" provision, that lets the local levy rise to cover new construction and major improvements.

One of CLT's long-term goals is to remove school budgets from the property tax altogether by funding public education with existing, broad-based state taxes while retaining local control through parental choice and vouchers.

Property taxes are still too high in Massachusetts. But they are not as high as they were, and certainly not as high as they were heading before the implementation of the initiative petition known as Proposition 2 20 years ago this week.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her syndicated columns appear weekly in the Salem Evening News and the Lowell Sun; bi-weekly in the Tinytown Gazette; and occasionally in other newspapers.

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