One of the most misunderstood concepts of municipal taxation is the meaning of Proposition 2 1/2. This legislative initiative was enacted in 1980 to limit the increases of property taxes in Massachusetts. Proposition 2 1/2 has performed its tax limiting function since then in the following manner.
1) A community cannot raise more than 2 1/2 % of last years levy limit plus new growth or override or debt exclusion amounts. A community therefore must live within the increases prescribed by 2 1/2 or a community can opt to attempt to pass an override or debt exclusion by successful voting at the polls. This gives voters control over how much property tax they are willing to pay.
2) A community cannot raise more in taxes than an amount greater than 2 1/2% of the total community value. This is known as the levy ceiling. Even a tax override cannot exceed this amount. A community is therefore bound by two "2 1/2's" minus 2 1/2% of last years levy limit or if a community is nearing its levy ceiling, an amount no greater than 2 1/2 % of the total community value.