The Property Tax and Local Aid

Since the passage of proposition 2 ½  some thirty years ago, property taxes and local aid have become the “yin and yang” of Massachusetts politics.  The property tax is the principal source of revenue for our municipalities.  However, it is generally insufficient to fully cover their operating budgets.  The funding gap is filled through the automobile excise tax,(a very small amount), and state local aid.

Proposition 2 ½ came into being because local municipal leaders could not resist the pressure of local special interests groups to raise the property tax. It was the continual increase in property taxes, income taxes and sales taxes that gave our state the moniker “taxachusetts”.  This all changed when the law passed and the process for raising local taxes became more transparent, open and formalized. 

While proposition 2 ½ has provided the home owning taxpayer with an improved level of protection from property tax increases, the door has not been completely shut.  The state legislature plays a large role in the equation through its control of local aid.  When our legislature demonstrates fiscal discipline, it keeps state costs down and gives local aid preferential consideration in the state budget.  When it goes into an expansionist mode, like it is now, local aid suffers.  Over the past five years, despite the rising costs associated with local government, local aid disbursements have either remained stagnant or been cut.  Costly unfunded state mandates and the state budget have increased.  The budget has swelled by some 8 billion dollars during that time.

The communities in the Second Middlesex have been struggling to keep their expenditures within the proposition 2 ½ limits as best they can.  In many cases they have done so on the backs of town employees.  Many have gone without raises, and in a few cases some have been laid off.  If the legislature continues on its current path, tensions within our local governments will increase and services may stand in jeopardy.  This will create pressure to raise the property taxes once again. 

This cycle can only be stopped by curbing state spending and restoring the primacy of local government during state budget deliberations.   Unfortunately, our legislature recently passed a House rule restricting discussions about local aid during the state budget debate. Given the current membership of the House, support for local aid is simply not in the cards. Watch out homeowners, the only place municipalities can go is to the property tax.