The slow burn of Proposition 2.5
During the course of the campaign, I wrote a blog post offering both an overview of Proposition 2.5 and its consequences. The most recent meeting of the School Committee came with a presentation about the need to cut multiple staff positions from the Medford Public School system (which is also mentioned in the blog) because the city is short a few million dollars. During that meeting, the Mayor outright said that a Proposition 2.5 override (in which people would vote to raise their own taxes) is necessary to keep the school system afloat. Longtime School Committee members have actually been discussing this for years, but it’s getting real attention now that we’re at the edge of that fiscal cliff.
What is Proposition 2.5?
To recap: Proposition 2.5 is a 1980 Massachusetts law that limits the amount of money a city can take in from taxes every year by 2.5 percent — barring new growth. So, if a city builds exactly nothing and takes in $100,000,000 in property taxes in 2020, it would only be allowed to take in $102,500,000 in property taxes in 2021. If, however, this city miraculously doubled its housing stock in 2020, it would be able to take in $202,500,000 in 2021.
What are the consequences of Proposition 2.5?
There are some purely mathematical implications of Proposition 2.5. The average rate of inflation from 1980 till today was 3.08% a year. This means that a dollar in 1980, 44 years ago, is worth about $3.80 today.
$1 * (1.0308) ^ 44 = $3.80
The maximum amount that a city can increase its tax levy — the total amount of tax money the city takes in — is only 2.5% a year. So, to a city that never has new growth, a dollar in 1980 is worth
$1 * (1.025) ^ 44 = $2.96
in 2024. Thus the budget is only about 78% as valuable.
What options do cities have? There are two: first, an override vote, in which voters choose to ignore prop 2.5 for a given year at the ballot. Most cities in Massachusetts have had these. They are often necessary because of what I just talked about above. The second is growth. Some cities have been more successful at this than others. Somerville and Cambridge both have never had a Proposition 2.5 override vote, but they’ve also seen massive investments in Assembly Row and Kendall Square. Medford really hasn’t seen similar improvements in the past 44 years, and we cannot count on tax revenue from new development to meet the needs of the fiscal shortfalls we’re seeing over the next year — though this City Council is working on a complete zoning overhaul that should lay the groundwork for similar growth in the future.
What does that mean for my property tax calculations?
I have heard people say that their property taxes rise every year, but they still don’t see any new services. This is true, partially because of inflation. Property taxes go up every year, but the overall value of those taxes decreases.
I have also heard people say that, in some years, their taxes have gone up by more than 2.5%. The reason for this is reassessment. Medford’s residential tax rate is $8.52 per $1000 of assessed value. This is actually very low — in 2023, Medford had the 316th lowest residential tax rate of the 351 municipalities in Massachusetts — though these values are explained a little by the very high property values in Medford (for context, Cambridge’s and Nantucket’s tax rates are much, much lower because their houses are so absurdly expensive). It’s the same rate for everybody. The assessor’s office can really only visit and reassess the value of a property once every ten years or so. So, when they do apply this reassessment to properties, the value — and thus the amount of taxes paid — can jump suddenly. If a person’s house was assessed at $500,000 in 2010, they would pay $4260 in property taxes under Medford’s residential tax rate. That amount wouldn’t change much year to year, except for the 2.5% increases. But, if the assessor returned in 2020 and declared that the new value of the property was $1,000,000, the amount of property tax paid would effectively double, even if the rate stayed the same. This has much larger effects on individuals. If the assessor declared that every property doubled in value, nobody would pay more in taxes, but if they did so to a few, the tax burden would shift drastically to those few people. It also means that, if a house leaves the tax base (which happens when Tufts University, being exempt from taxes, buys a house) that burden is shifted to everyone else.
Why are costs rising now?
None of this is really helped by the fact that, regardless of inflation, costs are rising across the board. There’s no one reason for this, but, rather, a confluence of factors. Health insurance rates rose drastically in the city, taking up more of the budget. This happened everywhere, not just Medford, and it’s due to the lingering effects of the pandemic. Medford has no choice but to pay this. Another way that this will manifest in costs later on is flood insurance — which is steeply rising in flood danger zones as we see the rising impact of global warming. At a recent budget meeting, the Department of Public Works explained to City Council that roads are more difficult and costly to maintain in the modern day because of the effects of global warming. Whereas Massachusetts used to have deep freezes over the winter, effectively preserving sidewalks and asphalt, modern winters see a pattern of freezing and unfreezing, which crumbles roads. The long and short of it is that, because of outside factors, the costs of things that we take for granted are rising, which squeezes the city’s budget even more.
