After the tax revolt fever that swept the nation more
than two decades ago, several states passed tax-limiting measures that performed
exactly as advertised. But while they achieved the goal of curbing property
tax increases, they also transformed the states' political structures in
ways their proponents never intended.
Citizen initiatives, such as Proposition 2 1/2 in Massachusetts and
Proposition 13 in California, caused towns to become more dependent on state
financial help. Over time, as the tax burden shifted from property taxes
to other taxes, so did political power. Towns found that the tax limits meant
losing some control over their own destinies.
In Massachusetts, for example, cities and towns have lost an extraordinary
amount of fiscal independence, said Geoffrey Beckwith, executive director
of the Massachusetts Municipal Association. Since Proposition 2 1/2 became
law in 1980, towns have come to rely heavily on the state to pay for public
safety, education and even road maintenance, he said. While the law successfully
limited property tax increases, towns and cities became more vulnerable to
decisions made by the state officials.
In Maine, there is growing political consensus that property taxes
are too high and that the burden should be shifted to other taxes, such as
a broader sales tax. Maine this year had the second highest property taxes
in the nation, ranked only behind New Hampshire, according to a survey by
the Small Business Survival Committee, a nonpartisan lobby group based in
Washington, D.C. Critics of the tax say it is regressive because it is based
on the value of property rather than on income. The tax can fall especially
hard on seniors, whose property values soar even as their incomes fall, and
on moderate-income people who own waterfront property.
Recipe for sprawl
Moreover, some say Maine's reliance on property taxes creates sprawl
because high tax rates in cities encourage people to move to rural areas,
where taxes are typically lower and where educational services are more heavily
subsidized by the state.
Revamping a state's tax system inevitably affects the political process,
and reforms that sound appealing can lead to less political accountability,
said Lynn Reed, research director for the Minnesota Taxpayers Association,
a nonpartisan public interest research organization.
Minnesota, for example, would seem like a paradise for Maine's weary
property taxpayers. The state of Minnesota now pays well over 80 percent
of the cost of education. It gets the money from sales and income taxes and
a statewide property tax on businesses and vacation homes - but not year-round
homes. The sales tax is 6.5 percent.
Because the education system seems like a "super bargain" for Minnesota
homeowners, Reed said, voters don't pay attention to how the money is being
spent. He said the relationship between taxing and spending has now become
so "hopelessly muddled" that there is little accountability and a lot of
In Maine, where many cities and towns pay for the bulk of the cost
of education, local officials or residents at town meetings decide how much
they will tax property owners for education and also how to spend that money.
For Reed, the issue is not how much is spent on education, but whether
the people making the decisions can be held accountable for their actions.
In that sense, Reed said, Maine's system is "fantastic."
There is nothing wrong with spending a lot of money on education, if that's what voters want, he said.
Where does money go?
The granddaddy of tax limiting measures, Proposition 13, has also muddled
the relationship between taxing and spending, said Lenny Goldberg, director
of Sacramento-based California Tax Reform. Tax revenue collected by the
state is poured into a "big central pot" and stirred, and taxpayers have
little sense of where the money goes, he said.
Proposition 13 was born in the 1970s, when California's economy was
booming and the state was flush with cash. Property values - and property
taxes - were soaring. Paralysis in state government over the issue of property
tax reform led to popular support for Howard Jarvis' and Paul Gann's Proposition
13, which capped property taxes at 1 percent of the property's value. Also,
property was no longer assessed at market value - the price a seller and
buyer would agree it was worth. Instead, property was taxed at its purchase
price plus a maximum rise of 2 percent a year for inflation.
Because local governments' ability to raise revenues was hamstrung,
the state began providing more and more money. Authority over local revenues
shifted away from municipalities and is now centralized in Sacramento, the
state capital. By confusing taxpayers about how their tax dollars are distributed,
the system reduces taxpayers' ability to hold their government accountable,
according to a report in 2000 by the Legislative Analyst's Office, a nonpartisan
office that advises the California Legislature.
Although it limited property tax growth, the measure hasn't curbed
government spending. Gov. Gray Davis announced two weeks ago that California's
budget deficit for the next 18 months would be a stunning $34.8 billion,
a shortfall bigger than the annual budgets of every other state except New
Proposition 13's influence spread beyond California. Half of the states
have adopted additional tax and expenditure limits. In the 1980s, Massachusetts
voters upended the state's tax system by approving a citizen initiative called
Proposition 2 1/2. Nearly 10,000 teachers statewide lost their jobs during
the law's early days, as property tax reductions reached nearly a half-billion
dollars. The tax-limiting law today has become an accepted part of the state's
'Taxachusetts' no more
At the time, the state's property taxes were among the highest in the
nation. Today, although the overall Massachusetts tax burden is higher than
average, the phrase "Taxachusetts" no longer applies.
To make up the difference in lost property tax revenue, the state gradually
increased financial aid to towns. It raised the additional funds, even while
cutting other state taxes, because the booming Massachusetts economy filled
state coffers with revenues, said Michael Widmer, of the Massachusetts Taxpayers
Foundation. The foundation is an independent, nonpartisan organization that
provides research on state spending and tax policies.
In 1993, to counter the disparity in education spending between urban
and suburban communities, the state drastically increased education aid to
cities. While Maine cities like Portland and Lewiston have some of the highest
property taxes in the state, Massachusetts' cities have some of the lowest.
Some of the Bay State's poorest cities receive as much as 70 percent of their
revenues from the state.
Compare, for example, the fates of Lawrence, Mass., and Lewiston. Both
are struggling mill towns with high concentrations of poor people. Lawrence's
tax rate, $13.99 per $1,000 of value, is half Lewiston's rate of $28.89.
Subsidized by the poor
South Portland City Manager Jeffrey Jordan said Maine's tax system
rewards people - by taxing them less - if they move out of cities and into
rural areas. That migration, in turn, raises taxes for everyone because additional
schools are then built, even as the state's student population declines.
Maine cities do a good job of keeping costs down, he said. Taxes are
high, he said, because residents' incomes are relatively low and the state's
education, transportation and land use policies have spread out the population,
making it expensive to provide services.
"The people who have to subsidize that are the poor people stuck in
the urban centers, where the jobs and the industries are," Jordan said.
In Massachusetts, the current economic downturn will make it harder
for the state to continue to be generous to its cities. This year, faced
with a deficit of more than $2 billion, the Massachusetts Legislature is
poised to slash local aid, and the fiscal constraints of Proposition 2 1/2
would leave municipalities with little choice but to lay off police officers,
firefighters and teachers.
In suburban towns, there is growing resentment among residents that
too much state tax money is sent to cities and suburban towns are not getting
their fair share, said Andrew Maylor, town administrator in Swampscott, an
affluent town of 13,000 people 13 miles north of Boston. The municipal budget
was cut long ago to the minimum, he said, and there is no room left for further
At the very least, in the view of many municipal officials, Proposition
2 1/2 is a financial collar that can quickly turn into a noose at the first
sign of trouble.
"They don't have any options," said Widmer of the Massachusetts Taxpayers
Foundation. "They are not the masters of their own fate."
Staff Writer Tom Bell can be reached at 791-6369 or at: