Cities and Towns Feel the Burden of 21/2

Last fall, the town of Rockport in eastern Massachusetts needed money.

Town administrators wanted to fund a new solid waste program and a health maintenance organization, but they lacked the $700,000 that the projects were expected to cost. They also had to make up for substantial cuts in state funds that Gov. Michael S. Dukakis ordered last year to help close the state's budget deficit.

Unable to ask the financially strapped state for the extra cash, Rockport officials turned to the residents of the community and asked them to vote on a referendum question to override Proposition 2 1/2, the state law that limits the amount a city or town can increase the property tax levy.

The community voted, Prop 2 1/2 was overridden for one year, and Rockport raised the money it needed through the increased property tax.

But with the rising costs of community services and little additional help expected from the state, the override question will likely show up again on next year's ballot.

"There is no question that further overrides will be necessary," says Rockport treasurer Bill Parsons, who cited the last year's move as a final resort to raise essential public funds. The question, Parsons says, is whether the town's residents will keep voting to approve the overrides.

That uncertainty has convinced Parsons and other state and local officials across Massachusetts that it is time to alter the 10 year-old tax limitation law.

Ever since Prop 2 1/2 was enacted, cities and towns relied on the state to make up for the lost tax revenue in local aid payments. But now, with the state facing a budget deficit of more than $500 million, state officials say they can no longer supply the necessary funds.

Dukakis has threatened to raise the $500 million by slashing local aid programs if the legislature--currently in a state of political paralysis--does not close the deficit by the end of the fiscal year in June.

The adminstration's budget for the next fiscal year, expected to be altered by the legislature, also calls for cuts of $100 million in the $2.8 billion local aid budget.

"The state has filled in the gap," says Paul Bockelman, executive secretary of Manchester, an eastern Massachusetts town that unsuccessfully attempted a Prop 2 1/2 override vote earlier this month. "But now that the state cash cow is dead, that money is not there anymore."

Prop 2 1/2, approved by almost 60 percent of the voters in a 1980 referendum, sets a limit on the amount of revenue a city or town can raise through property taxes and puts a cap on the annual property tax increase.

Under the law, property tax revenue for any city or town cannot exceed 2 1/2 percent of the fairmarket value of the taxable property in that city or town. It further restricts local governments from increasing the amount of revenue received from property tax by more than 2 1/2 percent a year.

Along with many local government leaders, Parsons calls the law an unrealistic restriction on municipal officials who rely on the property tax as their only means of revenue.

If tax revenue fails to keep up with inflation, Parsons says, communities are forced to reduce education budgets and cut back on basic services such as police protection and garbage pickup.

`Loosening Up'

"I think it is time for there to be some loosening up of some of the restrictions [of Prop 2 1/2]," says Helen F. Ladd, a senior fellow at the Cambridge-based Urban Land Institute who studied the effects of Prop 2 1/2 in the law's early days.

Ladd says that the 2 1/2 percent increase cap on the property tax is not flexible enough to allow for high inflation rates. If inflation causes the cost of local government services to increase by 5 percent, the 2 1/2 increase in revenue becomes insuffi-

Boston, like many cities and towns in the state, has raised property taxes to the 2 1/2 percent limit each year since the law was instituted, says Samuel R. Tyler, executive director of the Boston Municipal Research Bureau.

But Boston has never put an override question on the ballot, and only two cities--Cambridge and Northhampton--have successfully overridden the tax cap.

Efforts to Override

Last year, more than 180 of the state's 351 cities and towns had some type of override question on the ballot, according to The Boston Globe.

"If we don't resolve the fiscal crisis at the state level, Prop 2 1/2 will be adjusted," says state Rep. Byron Rushing (D-Boston).

While no plans to alter Prop 2 1/2 are on the table for immediate discussion, a number of suggestions are circulating through the State House.

One idea--suggested by the Governor's Task Force on Local Finance--calls on the state to establish a revenue sharing policy between the state and local governments. Under the plan, 26 percent of state taxes would be earmarked for cities and towns.

"I think a revenue sharing policy will be instituted some time," says Tyler.

The task force also recommended changing the law to allow property tax increases based on a "sliding index," which would take into account such factors as a city's property values and population.

But the same leaders and experts who point to the disadvantages of Prop 2 1/2 and call for changes say that anti-tax sentiments in the state will make any type of modification politically difficult.

Cherished by Massachusetts property owners and guarded by anti-tax lobbies and legislators on Beacon Hill, Prop 2 1/2 is in no danger of dying soon.

"I don't think its days are numbered. I don't think people are currently inclined to do away with a tax limiting law even though services may be cut," Parsons says.

Prop 2 1/2 was approved during a nationwide tide of anti-tax sentiment, at a time when high property taxes were soaring even higher. In that political climate, many local governments were pegged as wasteful bureaucracies which overspent the revenue they collected.

Those anti-tax feelings are still very much alive in the state. When House speaker George Keverian '53 (D-Everett) tried to push a tax package through the legislature to trim the deficit, constituents responded by flooding their state representives' offices with phone calls and letters to protest new taxes.

`Almost Biblical'

Meanwhile small municipalities like Rockport and Manchester will struggle with Prop 2 1/2 overrides to come up with money the state cannot afford to give away anymore. And the tax limiting law will not be modified without lengthy and heated debate, says state Rep. Thomas M. Finneran (D-Boston).

"It's still looked upon as almost biblical," Finneran says.