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Proposition 2 1/2
What is Proposition 2 1/2?
Proposition 2 1/2 is a State law that places a ceiling on the total amount of taxes that a Town can raise; and it also limits the percentage by which a town’s tax revenues can increase from year to year. That is, it provides Towns with annual increases in total tax revenue of 2 1/2 percent apart from the additional tax revenue that can be raised because of the construction of new homes and commercial buildings ("New Growth"). Proposition 2 1/2 has no relevance as far as tax increases on individual properties are concerned; it relates only to the total amount of taxes raised by the Town. That is, a variety of real estate market factors, such as property location and new construction, can affect the annual percent change in assessed value of individual properties. Consequently, there can be a wide variation in the percent change amounts of individual property assessments. A Town's taxes can rise by more than 2 1/2% through:
- Exclusions of the cost of
debt or spending for capital purposes must first be
approved by a two-thirds vote of the local legislative
body before appearing on the ballot. The idea is that such
costs are outside the regular budget for providing local
services; a town may need a new school or wish to acquire
land that it could not afford within its tax limits.
Exclusions are limited to the life of the expenditure.
- Overrides are permanent increases in the tax limit. An override, for a specific amount, must be approved by the municipality's legislative body and placed on the ballot for approval by the voters. No override may increase property taxes above the maximum rate of 2.5 percent of full value
How come my taxes seem to have gone up more than 2 1/2% even
when there hasn't been an override?
Your taxes are a function not only of overall changes in town taxes, but also of your share of those taxes. Your share is determined by your assessment, which may change year to year, and will not always move exactly as much as the average property. If your property value increases more than the town average, then your taxes will as well (and the reverse is true as well - if your property value increases less than the town average, then your taxes will increase less, or could even decrease)
For more detail, see Levy Limits: A Primer on Proposition 2 1/2