Local excess capacity continues to diminish statewide
As communities struggle to maintain public services in the face of local aid cuts, they have virtually exhausted any unused tax capacity in order to balance their local budgets.
Each year, the Department of Revenue calculates a property tax levy limit for each city and town under the provisions of Proposition 2 1/2. Local officials and voters then decide how much of that levy will be used and collected from taxpayers. “Excess capacity” results when a municipality uses less than the full amount available under the cap. This amount may be used in future years.
Fiscal 2003, the last year for which complete data are available, marked the lowest level since fiscal 1999 for excess capacity statewide, according to data from the Department of Revenue.
Excess capacity statewide was just 2.1 percent of the total statewide levy limit, or only $181 million, in fiscal 2003, down from 2.4 percent ($198 million) in fiscal 2002. Excess capacity appears to be at least as low in fiscal 2004, based on the 305 community reports available to date.
The excess capacity that remains is heavily concentrated among just a few communities. Last year, 56 percent of excess capacity statewide belonged to just 3 percent of communities. This trend continues in fiscal 2004. These communities are mostly cities, a number of which rank relatively low in income wealth.
The majority of communities have a bare minimum of excess capacity. In fiscal 2003, 61 percent of cities and towns had excess capacity of less than 1 percent of their levy limit. In fiscal 2004, data show that 66 percent of communities have excess capacity of less than 1 percent.
There are a number of reasons that communities may have excess capacity – mainly sensitivity to the property tax burden on individuals and businesses, tightly controlled spending, and the presence of a single, high-value property. Massachusetts has relied heavily on the property tax to support local services in the past and remains above the national average in property tax burden.
Deep local aid cuts over the past two years coupled with unavoidable growth in health insurance and other personnel costs have translated into an increased property tax burden as well as municipal and school personnel losses, local service reductions, and deferred asset management.
Many communities are finding their allowable increase under Proposition 2 1/2 for fiscal 2005 will be consumed by increasing health care costs and required pension contributions.
