Civic Engagement

Governor's Working Group on Property Tax Over Reliance

Across the Commonwealth today, municipalities are facing corrosive disputes over Proposition 2 1/2 overrides. These yearly debates invariably pit senior citizens against young families, and force agonizing choices between putting a new cop on the street or cutting entire subject areas from the school curriculum.

Last year, 59 overrides of Proposition 2 1/2--which limits how much a municipality can raise through property taxes--were rejected, while 30 were approved. According to the Boston Globe, 2006 marked the first time this decade that more overrides failed than passed, making it the lowest passage rate since 1999.

Our neighborhoods, our schools, and our streets are in disrepair because we continue to ask our cities and towns to provide additional services with little to no access to alternative funding. Where overrides succeed, we see the conflict play out in our rising property taxes; where they fail, we continue to see the neglect of our public safety, education, and infrastructure.

The pressure on homeowners is real.

With falling state revenues and cuts in local aid, cities and towns have been forced to pass the costs of essential services along to homeowners in the form of residential property taxes. In 1986, residential and open-space property taxes accounted for 65.3% of all property taxes collected in the state, while industrial, commercial and personal property taxes accounted for 34.7%. In recent years, however, the burden has increasingly fallen on homeowners. From 2001 through 2006, the share of total property taxes attributable to residential and open-space property taxes rose to 73.2%, while the share attributable to commercial, industrial, and personal property taxes fell to 26.8%. (See, http://www.massbudget.org.)

The pressure on business is real.

But property taxes don't just affect homeowners--studies show that property taxes also have a negative effect on a municipality's ability to attract new businesses and jobs. According to a recent study, taxes can negatively impact business start-ups. Specifically, economists have found that property taxes, because they are paid regardless of profit, have the strongest negative effect on start-up businesses, as such start-ups often take years before they turn a profit. Moreover, high property taxes have a strongly negative effect on the annual growth of private employment, as businesses naturally gravitate towards municipalities with relatively low property-tax burdens. (For more about these studies, see http://www.taxfoundation.org/files/bp52.pdf.)

Our cities and towns are in crisis.

Many cities and towns that have chosen not to pass Proposition 2 1/2 overrides face fiscal crisis. We're all familiar with the fiscal crisis that hit Springfield, and the control board that currently runs the city. Aside from Springfield, there are three Massachusetts regional school districts under the authority of control boards due to fiscal crises in the towns that comprise each region. In addition, the towns of Medway, Southbridge, and Swansea have been granted the ability by the legislature to deficit borrow, and are monitored closely by the Massachusetts Department of Revenue.

As we look to 2008, there are many more communities that are under significant fiscal pressures. The towns of Northbridge, Canton, and Randolph are all facing multi-million-dollar shortfalls. The towns of Dartmouth and Middleborough face projected deficits of between $4 and $4.5 million. Saugus is facing a $5.2 million projected deficit. And, frankly, there are many more cities and towns that are a couple of years away from similar circumstances. As these fiscal crises pile up, it means that more and more Massachusetts residents will be faced with strapped schools, fire and police departments, and neglected public infrastructure.

Homeowners in Massachusetts need real property tax relief, and they need it today. We believe that giving municipalities tools to manage their costs and increase their revenues is an essential part of a long-term solution. The Municipal Partnership Act isn't the whole answer, but it is a valuable first step, based on the very straightforward principle of working in partnership with local government to save homeowners real dollars.