Framingham City Leadership Gets Proposition 2 1/2 Completely Wrong

Mayor Sisitsky and Councilors King and Cannon have made a basic budget mistake which could severely damage city operations and the schools.

Mar 15, 2024

On Tuesday, March 12, 2024, the Framingham City Council Finance Subcommittee held the first of a series of planned meetings on the city FY25 budget. In approaching the FY25 budget discussions, it is important that the Mayor and his administration, and the City Council, be fully informed about the financial and legal environment which governs their decision making.

Therefore, it is remarkable that both the Mayor and the leadership of the City Council Finance Subcommittee, City Councilors George King and Mike Cannon, showed in the meeting that they completely misunderstand the constraints Proposition 2 ½ places on the Framingham FY25 city budget increase.

Watch this video and you’ll see them argue that ‘by state law’ the tax levy - the amount of revenue a community can raise each year through real estate and personal property taxes - cannot increase by more than 2.5% each year.

Framingham Mayor and Councilors Cannon and King Get Prop 2 1/2 Completely Wrong

While that may be true for many municipalities, it is not true for Framingham and dozens of other communities across Massachusetts. As we shall see Framingham could increase the tax levy by up to 22%, which would be a $46 million increase, and still be compliant with Proposition 2 ½. So, the city is not restricted to a 2.5% tax levy increase.

No one is recommending a 22% increase in the tax levy, but it is important to know that we have much more tax increase flexibility than the Mayor and Councilors King and Cannon would have us believe.

That flexibility will prove to be critically important in producing a sound FY25 city budget in a year in which the projected state Chapter 70 education funding increase for Framingham schools in FY25 has plummeted to around $1 million, compared to $16 million and $11 million in the two prior budget years, FY24 and FY23.

Those big Chapter 70 increases in prior years enabled the city to shift $10 million/year in local education funding from the schools to fix city infrastructure: roads, roof replacements, water & sewer. That $10 million/year in local funding will have to come back to the school district in FY25 now that Chapter 70 funding increases have dried up.

That can only happen if the tax levy rises significantly more than 2.5% in the FY25 budget.

Let us examine the tax picture in more detail.

It is important to understand two different things: the tax levy, discussed above, and the tax levy limit.

Proposition 2 ½ places a limit on how much tax each municipality can collect annually. That limit is called the tax levy limit.

It is different for each municipality, but can only increase by 2.5% each year, unless there is an override to permit a larger increase. New growth from development can also be added to the tax levy limit each year, but apart from overrides and new growth, the basic rule is a 2.5% increase each year for the tax levy limit.

For simplicity, we’ll leave out new growth and overrides from the subsequent discussion. They can always be added in for any municipality to get precise figures, but they don’t change the basic thrust of the argument here.

So, to sum up each municipality has a tax levy, which is money it collects each year through real estate and personal property taxes. That tax levy cannot be higher than the tax levy limit mandated by Proposition 2 ½, and that tax levy limit increases by 2.5% each year.

Many communities have historically taxed as much as Proposition 2 ½ will allow. They taxed to their tax levy limit from the start, when Proposition 2 ½ became law, and each year their tax levy limit rose by 2.5% and they moved their tax levy right up to that limit. For these communities, their tax levy increase is constrained by state law to rise by only 2.5% each year.

Other communities decided at some point to not tax to their tax levy limit, so their tax levy fell below their tax levy limit. Framingham is one of those communities.

For 30 years, up until 2013, Framingham taxed to the tax levy limit, with the tax levy rising 2.5% each year. Then in 2013, Framingham decided to tax below the tax levy limit. The chart shows the tax levy limit (blue) and the tax levy (red) for Framingham in the years since. The difference between these two, the unused tax levy, is also shown (green). The unused tax levy is also commonly called excess capacity.

What are the rules for municipalities which let their tax levy fall below their tax levy limit? The answer is very simple. In any given year, they can increase their tax levy all the way up to their tax levy limit. Proposition 2 ½ simply says they cannot go higher than that.

So, for FY25, Framingham could move its tax levy all the way up from around $211 million, shown in the above chart, to the tax levy limit which is about $257 million. That would be roughly a $46 million increase, or a 22% increase, way more than the 2.5% increase the Mayor and King/Cannon claim is the limit.

Mayor Sisitsky and Councilors King and Cannon have fallen victim to a common misconception that the tax levy can never be increased by more than 2.5% annually. That is only true of municipalities which have no unused tax levy.

All of the information employed above has been drawn from the Municipal Databank, which houses all municipal financial data, and from the state primer on Proposition 2 ½:

LEVY LIMITS: A PRIMER ON PROPOSITION 2 ½

The state primer is very readable and fleshes out how Proposition 2 ½ works, with some good examples. Note that the state primer uses: ‘levy’ where we have use ‘tax levy’, and ‘levy limit’ where we have used ‘tax levy limit’. It’s just a simpler terminology.

On p. 13 of the primer, one finds the following:

"It is important to note that as long as a community levies no more than its levy limit, there is no restriction on the dollar increase or percentage increase in its levy from year to year. Proposition 2 1⁄2 restricts increases in the levy limit, not the levy. A community is permitted to tax up to its levy limit, even if it must raise its levy by a large percentage over the previous year’s levy.”

Then the primer provides an example of how this works, and for that case the tax levy increase comes out to be 13.8%.

Take a read. It is well worth understanding what the Proposition 2 ½ law actually means.

Further, on p.14, the primer talks about common misconceptions. Remember that excess levy capacity is another term for unused tax levy, and is generated by setting the tax levy below the tax levy limit:

“There are two common misconceptions about excess levy capacity. The first misconception is that if a community has excess levy capacity in one year, then its ability to levy up to its levy limit in succeeding years is negatively affected. This misconception is based on the fact that Proposition 2 1⁄2 limits the amount a community can increase its property taxes from year to year. Many think this means that a community cannot raise its levy all the way up to the levy limit to use all its excess capacity in just one year.

This is not true. As we have already seen, Proposition 2 1⁄2 limits increases from year to year in the levy limit, not the levy. Before the tax rate is set, the full amount of the levy limit is always available to the community, regardless of how much of the limit the community has chosen to levy in previous years. It is within the law under Proposition 2 1⁄2 for a community to have excess levy capacity in one year and, in the following year, to levy right up to the full amount of its new levy limit. This is true no matter what the percentage increase in the levy would be in order to achieve this result.”

This is the misconception blinding the Mayor and City Councilors King and Cannon.

Fortunately, it should be a simple matter to correct the confusion of the Mayor and Councilors King and Cannon, and engage in a sound FY25 budget discussion, which includes the option to increase the city tax levy by more than 2.5% to address the challenging problems the city faces.

If the Mayor and Councilors King and Cannon and any other Councilors show resistance to tax increases higher than 2.5%, the community cannot sit on the sidelines and let city operations and the school system be hacked apart by damaging budget cuts and draconian layoffs. Especially, parents with children in the schools will have to engage to pressure the Mayor and the City Council to make wise decisions.

The final point to make is that if the Municipal Databank is searched for municipalities, which have taxed below their tax levy limit, generated unused tax levy, and then in subsequent years made use of that unused tax levy to raise their tax levy by more than 2.5%, many cases can be found.

They are models for Framingham to follow.

Here is a partial list, which also includes a web link for each case, which provides a supporting media release which confirms the tax levy increase data. For each case, the name of the municipality is given, followed by the fiscal year and the tax levy increase, followed by the web link.