State Aid Helped Cities Adjust : Massachusetts’ Property Tax Lid Working Well So Far

Five years ago, Massachusetts voters revolted against some of the highest property taxes in the country by approving a package of sweeping changes in government policy known as Proposition 2 1/2.

Today, supporters of that tax-limiting referendum of November, 1980, which was approved by 59% of the voters, say that it has been an unqualified success. Property taxes have fallen from the second highest in the United States (behind Alaska) to 17th, a trend that they see continuing until Massachusetts’ tax rates are among the lowest.

As with California’s Proposition 13, which inspired the Massachusetts move, it’s hard now to find any of the early critics who still believe that limiting property tax increases to 2 1/2% has had an overall negative impact.

James Segel of the Massachusetts Municipal Assn., whose cities and towns went through a painful round of budget cuts and layoffs after the referendum was passed, said, “There have been a lot of pluses,” and added that he might support the referendum if it were on the ballot today.

Richard Manley, president of the Massachusetts Taxpayers Foundation, says his group’s opposition in 1980 was one of the biggest mistakes it ever made.

Governor Concedes Success

Gov. Michael S. Dukakis, who was not in office at the time but predicted that voters wouldn’t go for Proposition 2 1/2, now says that an infusion of state aid to the cities and towns has enabled the law to work better than expected.

“I had hoped that by now everyone would come around and say, ‘Look, it wasn’t that bad’ and then say, ‘Actually, it’s great,’ ” said Barbara Anderson, executive director of Citizens for Limited Taxation, which helped to lead the initiative petition drive. “Most of them have.”

Taxes are now capped at 2.5% of a property’s full value. Homeowners and businesses that were paying an average tax of $37.44 on each $1,000 worth of property in 1980 had their bills permanently cut to no more than $25 per $1,000.

Cities and towns may increase the total amount of money they raise through property taxes by no more than 2.5% a year, regardless of inflation. Some communities had raised property taxes by an average of 11.5% in 1980 alone.

With municipal revenues slashed, city officials complained bitterly of being forced to close hundreds of schools and lay off more than 20,000 employees.

Waste-Cutting Effect

But homeowners and businesses celebrated the stabilization of property tax rates. Groups such as Citizens for Limited Taxation, which argued that voters need to restrict government because government would never restrict itself, said they were pleased that officials had to look for waste and decide which programs deserved funds.

“So far, it’s worked,” said Segel, whose association lobbies on behalf of cities and towns. “Communities are better run now. There is more professionalization and sharing of resources. People are forced into choosing priority situations, which is healthy for government, instead of saying you can have everything.”

“The state has become more of a partner in terms of financing. Yet, so far, we have limited the state role in terms of imposing mandates,” Segel said.

The increased support from the state has been the key to making Proposition 2 1/2 work. Massachusetts’ economy now generates enough new revenue from sales, income and business taxes that the Legislature can afford to send largely increased aid to cities and towns without having to make sharp cuts in state programs.