Town Manager's Blog
Edition FY2025-4
Topic: Proposition 2 1/2 Override Explained
Overview
There has been much discussion regarding the possibility of an override proposal. Our community is facing some challenging financial times in the future. We have addressed FY25 and are now focused on FY26. It is true that we have resolved the FY25 deficit by implementing $1.5M in operational budget cuts and will employ the use of $2.1M in reserve funding. Although FY25 has been resolved, it was done so on one-time revenues and therefore we will continue to have a structural deficit in FY26 and beyond. For FY26 we will need to continue to make significant cuts or come up with an additional revenue source. Unlike private businesses, the Town cannot simply raise our fees or market a new product, we must accept the circumstances and either invest in the community or make the difficult decisions that could devastate many departments and result in layoffs, closures, program suspensions, and an overall reduction in services for the community. The future of the Town of Dracut is in the hands for the taxpayers and their willingness to move Dracut forward or fall behind and risk its future.
Proposition 2/12 limits the amount of revenue a city or town may raise from local property taxes each year to fund municipal operations. This amount is known as the annual levy limit. However, the law allows a city or town to increase tax revenues above that limit with approval of voters at an election (Dracut also requires approval at Town Meeting prior to the ballot vote). It also requires a city or town to reduce its levy limit as specified by the voters.
There are three types of ballot questions:
1. Overrides
A levy limit override increases the amount of property tax revenue as community may raise in the year specified in the override questions and in future years. It increases the community's levy limit and becomes part of the base for calculating future years' levy limits. The result is a permanent increase in taxing authority. The purpose of the override is to provide funding for municipal expenses likely to recur or continue into the future, such as annual operating and fixed costs, although it may be used for any municipal spending purpose. The only limitation on the amount of the override is that the new levy limit, including the override, cannot exceed the overall Proposition 2 1/2 levy ceiling of 2 1/2 percent of the community's full and fair cash value. The Town of Dracut has never approved an operational override.
2. Exclusions
An exclusion increases the amount of property tax revenue a community may raise for a limited or temporary period of time in order to fund specific projects. The amount of an exclusion may be raised in addition to the community's levy limit. It does not increase the community's levy limit nor become part of the base for calculating future years' levy limits. The exclusion may be used to raise additional funds only for a capital purpose, which is any purpose for which a city or town is authorized to borrow. This includes most public building and public works projects, as well as land and equipment acquisitions. An exclusion may be used by a a community to fund its own capital spending, or its assessed share of capital spending by a regional school district or other regional governmental unit of which it is a member, whether the spending is financed by borrowing (debt exclusion) or withing the annual budget (capital expenditure exclusion). There is no limitation on the number or dollar amount of exclusions.
3. Underrides
A levy limit underride decreases the amount of property tax revenue a community may raise in the year specified in the underride questions and in future years. It decreases the community's levy limit and becomes part of the base for calculating future years' levy limits. The result is a permanent decrease in taxing authority.
Election Procedure
Proposition 2 1/2 questions are placed on an election ballot by vote of the Board of Selectmen, not Town Meeting. This is the only way an override or exclusion questions may be placed on the ballot. They may not be placed on the ballot by a town meeting vote or any local initiative procedure authorized by law. A local initiative procedure , however, may be used as an alternative method of placing an underride question on the ballot.
The Board of Selectmen must vote the question exactly as it will appear on the ballot.
- Overrides and Underrides - a majority vote of the Board of Selectmen is needed to place an override or underride question on the ballot.
- Exclusions - A 2/3 vote of the Board of Selectmen is needed to place an exclusion question on the ballot.
Process
Proposition 2 1/2 questions may be placed on a regular or special municipal election ballot. Questions may also be placed on the state biennial election ballot. However, those questions must be submitted to the Secretary of State for certification by the first Wednesday in August preceding the election.
The usual laws and procedures relating to municipal election apply. The municipal clerk must receive written notice of the question being placed on the ballot at lease 35 days before the date of the election. The vote to place a question on the ballot must take place in sufficient time to meet this advance notice requirement. Th Office of the Secretary of State is responsible for administering and enforcing election laws. A city or town may present Proposition 2 1/2 questions to the voters as many times during the year it chooses. The only constraint on the interval between theses elections is the time needed to call and hold each election.
Form of Questions
Proposition 2 1/2 specifies the form of each type of ballot questions. This exact language must be used to properly place a question before the voters. Proposed questions will be provided.
Statement of Purpose - All override and exclusion questions require a statement of the purpose or purposes for which the monies from the tax "assessment" or debt "issue" will be used.
Specificity of Purpose - The purpose must be described in a manner that enables voters to determine the appropriation(s) or debt obligations(s) covered by the questions. The degree of specificity required to do this will depend on the type of question.
Specificity of Purpose
Overrides
Override questions are designed to increase the amount of revenue generally available for appropriation. As a result, the spending purpose in an override question may be broad in scope such has general or departmental operating purposes. More specific spending purposes may also be stated such as where a service will be reduced or eliminated without the override. Examples include: funding the town's operating budget for both Town and School; defraying the costs of retirement contributions and health, life and unemployment premiums; funding the contractual costs of trash collection and disposal; funding the stabilization fund; and many more.
Exclusions
Exclusion questions are designed to fund specific capital projects. Therefore, the borrowing or spending purpose in an exclusion question must describe the particular project(s) being funded by the question.
Definition of Purpose
The purpose used in an override or exclusion question must be a spending or borrowing purpose. This means a purpose for which a community's appropriating body could vote to appropriate money or authorize debt. The purpose cannot be used to provide voters with information on the impact of an unsuccessful vote on the question or the underlying events or circumstances that may cause budget difficulties. Nor may it be used to promote or advocate for the override or exclusion.
For example, language that does not meet the definition of spending purpose would be questions with the state purpose of "restoring monies lost due to local aid reductions" or "increasing Free Cash." Theses questions do not state a spending purpose because communities do not appropriate fund for these purposes. In addition, the language that explains the impact of voter action on the question and is intended to promote the override or exclusion does not meet the definition of spending purpose. For example, "preventing substantial reductions in town services, programs and personnel and further deferral of vital capital projects," "preventing a reduction in the police department budget," "preventing the layoff of 4 police officers," "maintaining current municipal and educational services" or "restoring school athletic programs" would be inappropriate. The question must simply specify the personnel, services or programs for which the additional funds will be used. Thus, appropriate purposes for these examples above would be "funding the town's operating and capital expenses," "funding the police department operating budget," "funding the salaries of 4 police officers," "funding municipal and educational services," or "funding school athletic programs."
Finally, the spending purposes should not be characterized in a manner intended to promote the question by including financial information usually provided during the budget process. Examples would be "funding uncontrollable increases in employee health insurances costs" or "funding a 28% increase in the town's regional school district assessment." The question should just state the spending purpose: "funding employee health insurance costs" or "funding the town's regional school district assessment."
Other Information
Override and capital expenditure exclusion questions must also include the total amount of additional taxing authority being requested and the fiscal year in which it will be used. This information is not included in debt exclusion questions. Any additional information about the requested amount, the services and programs to be funded by the requested amount, and the impact the vote will have on those services cannot be included in the question or on the ballot. That type of information should be provided in the course of a balanced, comprehensive, public information effort. Public information efforts undertaken by local officials must be consistent with election and campaign finance laws.
Approval of Questions
A question is approved if a majority of the people voting on that question vote "yes."
Approval of Multiple questions on the Same Ballot
A community may place as many questions on a regular of special municipal election ballot as it chooses. However, if the community decides to place questions on the state biennial election ballot, it is limited to three questions:
Use of Additional Taxing Authority (Earmarking)
Approval of an override or exclusion question establishes the maximum amount of additional taxing authority available to the community. The spending decisions made by the community's appropriating body determines if any or all of this additional taxing authority is actually used. Thus, while the additional dollars are still part of the community's general unrestricted revenues (levy) and are not a separate financing source for the purpose of making appropriations, those dollars are considered "earmarked" because they cannot be raised in the tax levy unless the community appropriates them for the purpose stated in the question.
1. Overrides
Single Question Override
Presents voters with a single choice of additional funding for general or specific spending purposes. The following are examples of hypothetical single question overrides:
Shall the Town of Dracut be allowed to assess an additional $2,000,000 in real estate and personal property taxes for the purposes of funding the operating budgets of the Town and the Public Schools for the fiscal year beginning July 1, XXXX?
Shall the Town of Dracut be allowed to assess an additional $2,000,000 in real estate and personal property taxes for the purposes of funding the following departmental expenses: School Department ($750,000), Police Department ($250,000), Fire Department ($250,000), Public Works Department ($250,000), Public Library ($250,000), Parks and Recreation Department ($150,000), Council on Aging ($25,000) and Financial Offices, including Assessors, Collector-Treasurer, Accountant, ($75,000) for the fiscal year beginning July 1, XXXX?
Pyramid or Tier Overrides
A community may present a "pyramid" or "tier" override to the voters. A pyramid override asks voters to determine which, if any, of two or more funding levels they are willing to approve. A separate override question is placed on the ballot for each funding level, with each questions stating the same purpose purposes. Tiered means that the purposes of all lower funding levels. Any question is approved if a majority of the persons voting on that question voted "yes." If more than one question is approved, the question specifying the highest dollar amount governs. This rule also applies where the questions are presented as alternative proposals to the voters.
The Elections Division of the Secretary of State's Office advises communities presenting pyramid or tier overrides to include voting instructions on he ballot. The following are examples of hypothetical Pyramid or Tier Overrides:
Example 1. General Purpose
1A. Shall the Town of Dracut be allowed to assess an additional $1,000,000 in real estate and personal property taxes for the purposes of operating the Municipal Government and Public Schools for the fiscal year beginning July 1, XXXX?
1B. Shall the Town of Dracut be allowed to assess an additional $500,000 in real estate and personal property for the purposes of operating the Municipal Government and Public Schools for the fiscal year beginning July 1, XXXX?
1C. Shall the Town of Dracut be allowed to assess an additional $250,000 in real estate and personal property for the purposes of operating the Municipal Government and Public Schools for the fiscal year beginning July 1, XXXX?
Example 2. Multiple Purposes with Allocation
1A. Shall the Town of Dracut be allowed to assess an additional $1,000,000 in real estate and personal property taxes for the purposes of funding the School ($500,000), Police ($250,000) and Fire ($250,000) Departments for the fiscal year beginning July 1, XXXX?
1B. Shall the Town of Dracut be allowed to assess an additional $500,000 in real estate and personal property taxes for the purposes of funding the School ($250,000), Police ($125,000) and Fire ($125,000) Departments for the fiscal year beginning July 1, XXXX?
1C. Shall the Town of Dracut be allowed to assess an additional $250,000 in real estate and personal property taxes for the purposes of funding the School ($125,000), Police ($62,500) and Fire ($62,500) Departments for the fiscal year beginning July 1, XXXX?
Example 3. Multiple "Pyramids"
1A. Shall the Town of Dracut be allowed to assess an additional $500,000 in real estate and personal property taxes for the purposes of funding the School Department for the fiscal year beginning July 1, XXXX?
1B. Shall the Town of Dracut be allowed to assess an additional $250,000 in real estate and personal property taxes for the purposes of funding the School Department for the fiscal year beginning July 1, XXXX?
1C. Shall the Town of Dracut be allowed to assess an additional $125,000 in real estate and personal property taxes for the purposes of funding the School Department for the fiscal year beginning July 1, XXXX?
2A. Shall the Town of Dracut be allowed to assess an additional $300,000 in real estate and personal property taxes for the purposes of funding the Police Department for the fiscal year beginning July 1, XXXX?
2B. Shall the Town of Dracut be allowed to assess an additional $200,000 in real estate and personal property taxes for the purposes of funding the Police Department for the fiscal year beginning July 1, XXXX?
2C. Shall the Town of Dracut be allowed to assess an additional $100,000 in real estate and personal property taxes for the purposes of funding the Police Department for the fiscal year beginning July 1, XXXX?
"Menu" Overrides
A community may place several override questions each of which will fund different services or programs on the same ballot. If voters approve more than one override question stating different purposes, the community's levy limit may be increased by the total of the amounts specified in all approved questions. The following are hypothetical examples of "Menu" Overrides:
Shall the Town of Dracut be allowed to assess an additional $1,000,000 in real estate and personal property taxes for the purposes of funding the Dracut Public Schools and the Greater Lowell Regional High School for the fiscal year beginning July 1, XXXX?
Shall the Town of Dracut be allowed to assess an additional $250,000 in real estate and personal property taxes for the purposes of funding the Dracut Fire Department for the fiscal year beginning July 1, XXXX?
Shall the Town of Dracut be allowed to assess an additional $250,000 in real estate and personal property taxes for the purposes of funding the Dracut Police Department for the fiscal year beginning July 1, XXXX?
Shall the Town of Dracut be allowed to assess an additional $100,000 in real estate and personal property taxes for the purposes of funding the Dracut Library for the fiscal year beginning July 1, XXXX?
"Multi-year Overrides
A community may seek voter approval of an override for more than one years. To do so, a separate question must be placed on the ballot for each fiscal year in which the additional levy capacity being requested will be used. The amounts and purposes in the question may be the same or different. The following are hypothetical examples of "Multi-year" Overrides:
Shall the Town of Dracut be allowed to assess an additional $1,000,000in real estate and personal property taxes for the purposes of operating the Municipal Government and Public Schools for the fiscal year beginning July 1, 0001?
Shall the Town of Dracut be allowed to assess an additional $500,000in real estate and personal property taxes for the purposes of operating the Municipal Government and Public Schools for the fiscal year beginning July 1, 0002?
Shall the Town of Dracut be allowed to assess an additional $1,000,000in real estate and personal property taxes for the purposes of operating the Municipal Government and Public Schools for the fiscal year beginning July 1, 0003?
2. Exclusions
A community may place several exclusion questions for different capital projects or groups of capital projects on the same ballot. The community may raise the additional amounts excluded by each question approved by the voters.
Debt Exclusion - A debt exclusion covers debt service on the amount of borrowing authorized or contemplated for the stated purpose at the time of the election. Debt Service includes payments of principal on permanent debt and interest on permanent and temporary debt. The debt service on any additional borrowing above the amount fixed at the time of election is not covered unless (1) it is a modest amount attributable to inflation, new regulatory requirements or minor project changes, or (2) another debt exclusion is approved by the voters. any premiums received on the debt issue must be offset against the stated interest cost when calculating the debt exclusion so that it reflects the true interest cost incurred to finance the project. If the project has been completed, abandoned or discontinued, there may be unspent surplus debt excluded proceeds. If there are unspent surplus proceeds when the
Voter Information
Local officials may not publish and provide voter information materials at public expense, including a summary of the impact a "yes" or "no" vote will have on local services, unless specifically authorized by statute. Campaign Finance Law (Chapter 55) governs the raising and spending of money for ballot questions as well as political officials and employees under taking campaign finance activities. Any question relating to this should be direction to the Elections Division of the Office of Secretary of State at 617-727-2828.
Campaign Activities
General Laws Chapter 55 governs the raising and spending of money for ballot questions as well as political candidates. The law also regulates the conduct of public officials and employees undertaking campaign finance activities.
In general, the law regulates conduct not speech. Thus, while local officials can take a position on an override or exclusion question and speak in favor of or in opposition to it, they cannot spend public funds or use public resources, such as personnel, supplies and facilities, to promote or oppose the question. Public employees may work on an override or exclusion campaign on a volunteer basis, on their own time, in any capacity other than fundraising. They may also make personal contributions to political committees established for the purpose of promoting or opposing the ballot question.
Revocation of Questions
Proposition 2 1/2 does not provide for the revocation or rescission of an approved question. An override can be negated, however, by voter approval of an underride. An exclusion can be negated by not funding the related borrowing or appropriation.
Relationship to Appropriations
Proposition 2 1/2 establishes a limit on the annual property tax levy and approval of an override or exclusion question only increases the amount a community may raise in taxes. It does not authorize or require spending for the purpose of the question. Similarly, an underride only decreases the amount a community may raise in taxes. The legal power to make spending decisions is still with Town Meeting.
Appropriation - Election Sequence
A community should adopt a budget process that will result in a balanced budget by July 1, but in any event, it must have a balanced budget within the limits of proposition 2 1/2 by the time it sets a tax rate for the year. It may establish its expenditure and revenue budgets in any order it chooses. It could fist seek voter approval of an override or exclusion question and then make appropriations for the year within a fixed revenue estimate. Alternatively, the community could choose to first adopt its expenditure budget if that budget requires additional revenue to fully fund it then seek voter approval of an override ore exclusion question. If the question is successful, the budget will be balanced, and a tax rate may be set without further action. If the question is successful, the budget will be balanced, and a tax rate may be set without further action. If the question is not successful, then the community will have to reduce appropriations and/or increase non-tax revenues in order to establish a balanced budget and set a tax rate. The chart in Appendix D in order to establish a balanced budget and set a tax rate.
Contingent Appropriations
A third budgeting approach available only to towns with town meetings is to adopt a balanced budget and then appropriate additional amounts to supplement that budget expressly contingent on the subsequent approval of an override or exclusion question. A contingent appropriation votes dows not place a question on the ballot. The decision whether or not to present any Proposition 2 1/2 question to the votes is still made by the Board of Selectmen. It may choose not to present a question for any or all contingent appropriation made by town meeting. It may also place a question on the ballot for less than the contingent appropriation, which if approved, makes the appropriation effective to the extent of the amount stated in the question.
Statutory Requirements
Contingent appropriations may be made from the tax levy, available funds or borrowing and are subject to the following statutory requirements:
A contingent appropriation is not effective until the override or exclusion question is approved. This means that until the question is approved, a town cannot spend from the contingent appropriation.
The statement of spending purpose in the override or exclusion question must be substantially the same purpose as the contingent appropriation. This means the question need not be worded in exactly the same way as the appropriation. However, it much describe the purpose in a sufficiently similar manner that the voters can identify the particular appropriation the question is intended to fund. In the case of operating appropriations, this may mean the Board of Selectmen does not have as much flexibility in describing the specific positions, programs or services the question is intended to fund. In addition, each contingent appropriation need not be the subject of a separate questions. The Board of Selectmen retains the power to decide the content of all questions and may include several contingent appropriations within a single override or exclusion questions. In that case, the question must state the purpose of each appropriation it is intended to fund.
The deadline for obtaining voter approval of override ore exclusion questions for contingent appropriation made at the annual town meeting is September 15. More than one election may be held, but the contingent appropriation is null and void if the related question is not approved by September 15. The deadline for obtaining voter approval of override ore exclusion questions for contingent appropriations made at any other town meeting is 90 days after the close of town meeting at which the contingent appropriation vote was taken. More than one election may be held, but the contingent appropriation is null and void if the related question is not approved by the end of the 90-day period. If the contingent appropriation was made from the tax levy, the tax rate cannot be submitted to the Department of Revenue for approval until the override or exclusion question has been voted upon, or the applicable deadline for holding an election has passed, whichever occurs first.
Appropriation Types
Town meeting may make any appropriation contingent on a Proposition 2 1/2 ballot question even if "contingency" language was not included in the warrant article under which the vote was taken. Any language in the vote that indicates the appropriation is subject to the approval of a Proposition 2 1/2 question is sufficient.
Contingent appropriation may be used for appropriation for operating budgets, capital projects and regional school assessments. Towns often approve a regional school debt issue contingent on passage of a debt exclusion, but no appropriation is being voted at that time as required byt statute. While most regional school committees treat contingent debt approvals coupled with an unsuccessful election withing 60 days of the date the committee authorized the debt as a disapproval for purposes of General Laws, Chapter 71, Section 16(D), bond counsel should be consulted regarding these votes.
Role of the Department of Revenue
The Division of Local Services (DLS) in the Department of Revenue has general supervisory authority over local property tax administration and financial practices. It issues guidelines to assist local financial officials in the performance of their duties, renders legal opinions on local tax and finance issues, conducts training programs and approves revaluations and tax rates. DLS is also responsible under Proposition 2 1/2 for calculating a community's levy limit and for ensuring that a community does not set a tax rate that results in a tax levy exceeding the amount allowed by the statute.
More information can be found on the DLS website www.mass.gov/DLS.
