High Costs of State-Level Inaction: How Proposition 2 ½ Is Impacting Municipalities
Inaction in the State Legislature here in Massachusetts does not only prevent things from getting done at the state level. Municipalities across the state have had to navigate keeping communities afloat as Beacon Hill has become increasingly inactive over the years.
For years now, the Legislature has been causing local standstills through inaction. As unrestricted state aid to local governments has declined, municipalities have been increasingly unable to collect sufficient property tax revenue to compensate.
Much of this inability can be attributed to Proposition 2 ½, which is a provision in state law that limits the amount of annual property tax revenue that can be collected by municipalities.
What is Proposition 2 ½?
Believe it or not, this law was enacted about 45 years ago in 1980 via a ballot initiative. Having passed with only 56% of votes in favor of the law, Proposition 2 ½ has been a divisive issue since its beginning.
Proposition 2 ½ was first enacted with two key goals: making property taxes more predictable and providing tax relief to Bay Staters.
This was done by establishing a levy ceiling and a levy limit or:
- Capping annual property tax revenue for municipalities at 2.5% of taxable property
- Limiting the annual property tax levy to a 2.5% tax increase over the previous year, plus growth
In other words, there are three key parts to Proposition 2 ½. A property tax levy, or the dollar amount of property taxes able to be collected by a municipality, which should be within the annual levy limit. This levy limit is the maximum revenue able to be collected by a community within a fiscal year. This limit must be within the annual levy ceiling, which dictates what the maximum levy limit is.
However, if a levy limit is deemed to be too low or too high by the community, voters are able to override or underride the existing limit for a single year of tax collection. Voters also have the ability to vote on exclusions, or increases in a community’s tax levy.
(For more on how Proposition 2 ½ works, you can check out Massachusetts Municipal Association’s overview here and the Commonwealth of Massachusetts’ website here.)
According to the state government, Proposition 2 ½ has led to “greater coordination and better defined budgeting,” but others argue that the law overly restricts municipalities.
What issues has Proposition 2 ½ raised for municipalities?
In Massachusetts, municipalities are unable to collect revenue through local sales and income taxes, leaving them majorly reliant on two forms of funding: property tax revenue and local aid allocated by the State Legislature.
So, when property taxes are unable to be increased to address the fiscal needs of communities, state aid becomes the next line of defense.
While Proposition 2 ½ may be called “successful” in its ability to slow rapid increases in property taxes, some municipalities feel that they are unable to fulfill their own revenue needs, especially given that the state is increasingly less involved with supplying aid to communities.
Increasing economic uncertainty for municipalities, especially in recent years, had led to increasing opposition to Proposition 2 ½.
Last year, 41 towns across the state voted on overrides to fund projects. The increasing attempts to circumvent the restrictions created by Proposition 2 ½ have told advocates and constituents that the law is not working in favor of municipalities.
According to the Massachusetts Municipal Association’s (MMA) report from this past fall, [“the constraints [of Proposition 2 ½] may be too restrictive”](https://www.mma.org/wp-content/uploads/2025/10/MMA-APerfectStorm-HistoricFiscalPressures-report-10.9.25.pdf#page=[3]). Additionally, compared to the Legislature’s spending, Massachusetts municipalities have seen a minimal increase in total spending over the past decade.
While the state budget has had an average increase of 2.8% in annual growth between 2010 and 2022, Massachusetts’ municipalities have averaged 0.6% – an amount that is less than the average growth of municipalities across the United States as a whole. In other words, municipalities are unable to keep up with inflation that is consistently higher than what Proposition 2 ½ allows, but the Legislature is not prioritizing giving local aid to municipalities in its high spending budgets.
As costs are rapidly increasing, and state aid to local governments is decreasing overall, municipalities are being left in a situation where routine infrastructure projects, education, and even public safety are at risk. Adhering to the increasingly tight budgets that limit growth in spending as overall inflation increases is becoming increasingly impractical. Fiscal instability means that communities are unable to address their needs, especially when it comes to less affluent communities in the state. Additionally, the ability to plan for long-term projects is diminishing.
With that being said, Proposition 2 ½ still has many supporters throughout the Commonwealth. Some argue that the law has done its job well over the years to stop runaway property tax increases that drive residents out of state.
Additionally, municipalities have a good record of spending tax revenues wisely, with little to no waste according to the MMA’s findings.
So, while the answer to the issue of Proposition 2 ½ is still up in the air, one thing that can – and should – be continuously addressed is the lack of transparency in the Massachusetts State House. When more transparency is promoted in government, more efficiency will follow.
In other words, having a functioning State Legislature is part of the solution to underfunded municipalities.
Unfortunately, there are plenty of other examples of the lack of state-level transparency and the resulting inaction having negative consequences in municipalities.
Recently, CommonWealth Beacon published an article highlighting how the Legislature’s failure to keep track of Gateway Cities is impacting municipalities’ ability to receive adequate funding. As a result of not updating the list of Gateway Cities for about 13 years, some municipalities have missed an opportunity to receive funding for redevelopment.
The Legislature’s inaction has also negatively impacted municipalities in Massachusetts by using outdated formulas to calculate state aid for building projects, which has led to lower-income school districts losing out on funding opportunities.
The urgent needs of municipalities are continuously being pushed to the side as a result of the Massachusetts Legislature’s inaction.
So long as the few members of leadership in the State House continue to hold disproportionate power over the allocation of funding – particularly through their distribution of local aid via earmarks in state budgets – communities across the state will be unable to fund the projects that constituents both need and want.
So what now?
As of right now, it does not look like much concrete action will be taken for or against Proposition 2 ½.
What policy analysts across the state have agreed on is that the law does not allow for growth that can keep up with current inflation rates.
This means that towns across the Commonwealth are tasked with maintaining a workforce with less taxing power. In tandem with the State House neglecting to provide local aid to supplement the tax revenue raised by municipalities, the issue will only continue to grow as inflation grows.
Local leaders, like Boston Mayor Michelle Wu, have argued that better diversification of revenue is key to addressing shortcomings in local budgets.
The state does not necessarily need a complete overhaul of Proposition 2 ½ to address the issues it is both preventing and causing. What is needed is competitive, transparent elections across the state.
Without fair elections, local aid that is given out by the state will remain in the hands of those in leadership positions in the Massachusetts State House who decide on what is included in budgets session after session.
As Evan Horowitz – Executive Director of Tufts University's Center for State Policy Analysis – has said on Proposition 2 ½, “We have a mechanism… that’s what voting is for. You don’t need a mechanical law for this when you have functioning elections.”
Blog post by Sydney Mascoll, Act on Mass Policy Fellow, Fall 2025