and the
Citizens Economic Research Foundation

Barbara's Column
December #3
Look at the bright side:
Property taxes still going up, but could be worse

© by Barbara Anderson

The Salem News
Thursday, December 18, 2008

A bronze bust of Howard Jarvis, Father of the American Tax Revolt, sits on the top of my bookcase, looking spiffy this time of year in his red Santa cap.

In 1978, he created California’s Proposition 13, the first national property tax limit. Two years later, voters in Massachusetts passed our own version called Proposition 2½.

The Howard Jarvis Taxpayers Association gave me the bust a few years ago at a National Taxpayers Union dinner; it’s not only a conversation piece but a piece at which to direct conversation now and then. Since ICLICK PHOTO TO ENLARGE became a senior citizen like he was in ‘78, I appreciate his leadership even more than I did then. Property tax limits are really important when one is on a fixed income. Thank you, sir, and Merry Christmas.

Fresh from his own victory, Howard advised Citizens for Limited Taxation (CLT) as it was drafting its own initiative petition. For instance, he warned us not to freeze assessments, as he had done, because this provision was being challenged in California courts.

We couldn’t have frozen assessments anyhow because the Massachusetts constitution requires that all property be assessed at its full and fair market value. Prop 2½, unlike Prop 13, is a statute, not a constitutional amendment; in California it is relatively easy to amend the state constitution but in Massachusetts this requires co-operation from the Legislature which we knew we couldn’t get.

So property values, then as now, are set by the constitutional requirement for true market value, and our limit was drafted to fit within that requirement. Prop 2½ says that a community’s property taxes cannot exceed 2.5% of the community’s value, which is determined as of January 1 of the calendar year in which the taxes will be paid. Even with values dropping during 2007-08, the tax rates in this area are well below that 2.5% limit. But I know it seems strange that home values should be dropping but property taxes on those homes increasing.

I was CLT’s office secretary when the initiative petition was being drafted. The idea came from Marblehead-based economic writer Warren Brookes, who analyzed Proposition 13 and determined that a similar limit here should have a maximum tax rate of of 2.5%. In the summer of ‘79, a lawyer had been hired to do the actual draft and on the eve of the deadline to file the initiative petition with the Secretary of State in preparation for the petition drive, volunteer activists were going over the final language.

One of them wondered aloud: if tax revenues depended on home values, wouldn’t local assessors be pressured by local politicians and unions to, maybe, nudge those values up a little higher than they should be? The activists decided to do assessors a favor and protect them from that potential political pressure. It added a provision that said, regardless of the latest assessed values, the property tax levy from year to year could increase only 2½% – in effect, creating two limits. The tax rate couldn’t be more than 2.5% of value, and no matter how much that community’s value increased, the tax levy could increase just 2½ over the previous year’s levy.

So if a community’s value doubled, the tax rate would be cut in half, before the allowed 2½% increase was applied. Later a provision to allow the levy to increase by new construction was added, and an override provision was available for emergencies.

The limit doesn’t apply to individual parcels, but to all property in a community: some parts of town, some kinds of home, might appreciate faster, and therefore carry a larger share of the burden, and there might be different rates for residential and business property. But overall: 2.5% of total value, 2½% a year increase plus new growth plus overrides.

Of course, if a community’s value drops, the tax rate will increase to allow the same 2½% increase – but no one back in 1979 was concerned about values dropping.

The actual tax reductions required in communities whose tax rate was greater than 2.5% of value took place in the next few years, then all Massachusetts cities and towns were living under the second limit: the 2½% annual levy increase. The economy took off and there was plenty of “new growth” revenue added – and after the 59-41 vote for Prop 2½ in 1980, the state began to share local aid with the cities and towns.

To CLT’s surprise and dismay, some local voters began passing overrides, not just for emergencies, but for operating expenses, including pay raises and public employee benefit levels. Much local aid was also spent this way, So now when taxpayers’ own revenues are limited, frozen or reduced, and their homes lose value, the so-called “fixed costs” of local government increase each year, forever.

With the coming state fiscal crisis, local aid will be reduced and pressure will mount for overrides; CLT is filing legislation to allow them only on the biennial statewide election ballot. Once again, it is time for taxpayers to assert themselves and defend their homes. Somewhere, Howard Jarvis wishes us taxpayers well.

The comments made and opinions expressed in her columns are those of Barbara Anderson's
and do not necessarily reflect those of Citizens for Limited Taxation.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her column appears weekly in the Salem News and other Eagle Tribune newspapers; bi-weekly in the Tinytown Gazette; and occasionally in the Lowell Sun, Providence (RI) Journal and other newspapers.