Tuesday, June 26, 2001

20 Years of Proposition 2
CLT releases Lane & Company report on
twenty-year impact of levy limit

Copies will be available at the State House on Wednesday afternoon and on our website below

REPORT: Proposition 2 - 20 Years Later
(requires Adobe Acrobat Reader)

As Fiscal Year 2002 begins on July 1, 2001, the Proposition 2 property tax levy limit is twenty years old.

Prop 2 was passed by the voters in November 1980. It cut the auto excise rate by almost two-thirds, repealed two major state mandates and forbade future unfunded state mandates; these provisions took effect shortly after the vote. The property tax cut and/or levy limit went into effect the following July 1st, the beginning of all communities' fiscal year 1982.

Despite opponents' prophecies and claims of disaster, devastation and doom, Prop 2 successfully resisted efforts to repeal it, and cut or limited Massachusetts property taxes in every community in the Commonwealth. Twenty years later, property tax rates still cannot be more than 2.5 percent of fair market value (except temporarily for a debt exclusion), and each community's property tax levy cannot increase more than 2 percent a year (except for "new growth," or unless there is a voter-approved override).

Many of those long-ago opponents have become supporters. Some are still complaining, but it seems clear that Prop 2 is now an accepted part of the municipal landscape.

Citizens for Limited Taxation - which put Prop 2 on the 1980 ballot - asked its research arm, the Citizens Economic Research Foundation (CERF), to determine what the 20-year impact has been. CERF commissioned a report from Gloucester-based Lane & Company, which provides a municipal database used by the municipal bond market.

Highlights of the report, which adjusts for both population change and inflation, show the impact of the Prop 2 levy limit in constant per capita dollars from FY '82 through FY 2000:

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

  • Local appropriations are 42.2 percent higher than would be accounted for by inflation alone. Local receipts include auto excise revenues, fees, and non-enterprise water and sewer charges: they 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 114.2 percent. This was initially the result of voter-passed classification from a 1978 ballot question which was being implemented during the same time period as Prop 2.

  • 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.

Conclusion: Prop 2 cut and/or limited the growth in property taxes; it actually kept per capita residential property tax increases under inflation while limiting the increases in commercial/industrial property taxes that were inevitable with classification. Local spending, however, continued to grow faster than inflation. And it is important to note that the education establishment certainly did its share of that spending growth!

CLT's goal, to cut and limit the regressive property tax, was realized. The auto excise rate was cut, though revenues increased with motor vehicle prices over the years. Water and sewer charges and appropriations were removed from the property tax in many communities as enterprise funds were created.

Other major effects were to change the relationship between local government and the state by encouraging more local aid and discouraging state mandates; and between local voters and local government by requiring voter overrides for taxes above the base levy limit.

Property taxes are still too high in Massachusetts but not as high as they were and certainly not as high as they were heading before the passage and implementation of the initiative petition known as Proposition 2.

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