What is Proposition 2½?
Proposition 2 places constraints on the amount of taxes which the Town can levy and on how much the tax levy can be increased from year to year by the Town. It provides the Town with annual increases in its tax levy of: 2.5 percent and an additional amount based on the valuation of certain new construction and other allowable growth in the tax base (“new growth”). With proposition 2 , a minimum 2.5 percent increase in the Town’s total tax levy can be expected each year.
Proposition 2½ is a state law passed by voters in 1980. It says that cities and towns can only raise total taxes on existing property by 2.5% each year, unless the community votes for an override. This means that if property values double, the tax rate must be cut so that total taxes collected on existing property do not rise faster than Proposition 2½ permits. However, taxes on individual properties can rise by more or less than 2.5%. If the value of your house goes up faster than the average, your taxes will rise more than the average. Until recently, the price/value of owner-occupied housing was rising faster than the price of rental housing and commercial property. Therefore, taxes on owner-occupied housing rose more than 2.5%. Communities may also collect additional taxes on “new growth,” which is the term used to describe new development and substantial improvements to existing properties. Because of the complicated way that Proposition 2½ works, some of the taxes on “new growth”
