The Fiscal Alliance Foundation has released a new study on the effects of Proposition 2½ in Massachusetts as state and local officials increase efforts to get around the law due to budget shortfalls caused by stagnating local state aid.
“Proposition 2½ has delivered decades of meaningful tax relief for Massachusetts homeowners and remains the single most important protection against higher property taxes. Despite claims from political insiders, this law is not overly restrictive. In fact, it still allows property taxes to grow well above inflation in many cases,” said Fiscal Alliance Foundation Executive Director Paul Craney.
The study, entitled “Proposition 2½: Keeping Property Taxes Low Since 1980,” was conducted by national tax policy expert Jared Walczak and released by the Foundation. It shows that since it was passed into law in 1980, Proposition 2½ has significantly reduced property tax burdens across the state. Without it, Walczak says today’s median property tax bill of $6,896 per year would be over a whopping $24,600.
Currently, the effective property tax rate on residential properties stands at approximately 1.04%, down from the 3.72% before the law was enacted, good enough to be 30% higher than the national average, 287% higher than the national average when it started in 1980.
“Proposition 2 ½ has provided Massachusetts residents with decades of relief,” Walczak told reporters in a media briefing on his study. “Proposition 2½ changes the trajectory of property taxation by limiting the extent to which rising valuations automatically translate into higher tax bills. That distinction is critical. Without those constraints, homeowners would not just face higher taxes, but more volatile and less predictable ones, largely driven by rising home values rather than deliberate policy choices.”
If Proposition 2 ½ were repealed a decade ago, the average Massachusetts homeowner’s property tax bill would be roughly 19% higher, and 22% higher if it had not been in place over the past two decades, according to the study.
The study comes as Proposition 2½ faces increased criticism on Beacon Hill and in town halls across the Commonwealth. This as municipalities struggle with dwindling local state aid and find themselves in a budget shortfall nightmare as lawmakers spend on projects related to climate mandates and social services and programs, including for illegal immigrants.
“Despite claims from political insiders, this law is not overly restrictive. In fact, it still allows property taxes to grow well above inflation in many cases,” Craney added. “This report makes it clear that critics are misrepresenting how the law works. Proposition 2½ is not some rigid cap. It already gives local governments significant flexibility. What it does do is play a critical role in preventing sudden and automatic tax hikes driven by fast rising property values.”
The study found that property tax revenues have grown by roughly 4.4% annually since the law was implemented in 1980 due to new construction and other factors built into the legislation.
Last year, Gov. Maura Healey filed the Municipal Empowerment Act, which would allow municipalities to work around the 2.5% property tax cap by raising other taxes to collect revenues. Across Massachusetts, several cities and towns are taking up Proposition 2½ overrides, most notably in South Hadley last month where voters overwhelmingly rejected a controversial proposed 50% property tax hike.
But Proposition 2½ overrides still show to be unpopular among many Massachusetts communities, with the study finding a total of 97 cities and towns that have never even held a proposition 2½ override vote.
The study also finds that decreasing amounts of state aid to municipalities are the primary driver of fiscal pressure on local governments, not Proposition 2½. Massachusetts provides significantly less local aid to its cities and towns than the national average, with the study finding that if local aid levels matched national norms, cities and towns would receive an additional $1.82 billion more in revenue, equal to a 9% increase in property tax collections, the study says.
“Beacon Hill has consistently underfunded local communities while simultaneously pushing to weaken taxpayer protections. Instead of raising property taxes on working families, lawmakers should focus on fixing the state’s broken funding priorities,” said Craney.
“Limited local aid, that’s sort of the cycle that the government of Massachusetts works with. Limit local aid and then blame Prop 2½. Now they’re using it as an excuse to get rid of Prop 2½, added Chip Ford, of the activist group Citizens for Limited Taxation. “The state government and many others have been trying to get rid of proposition 2½ before it even got on the ballot in 1980. So it’s been a constant battle trying to discover and prevent all of the proposed changes to it over the decades.”
The study examined the effects of Proposition 2 ½ effects statewide and in ten cities and towns selected to represent the geographic and economic diversity of Massachusetts: The municipalities studied include Agawam, Barnstable, Beverly, Boston, Concord, Holden, Lenox, North Reading, Rochester, and Sturbridge.
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