Spending, Property Taxes & the Tax Rate

Falmouth Financial Department are developing this portion of the Town's website with the hope that it will evolve into useful a source of information for town meeting member, taxpayers and others with an interest in Falmouth finances.

There is a lot of explanation and reference material here and through links but our new, What Will That Cost? tool will no doubt be a favorite.

We have made an attempt to simplify this information when possible but unfortunately tax laws and regulations tend to defy attempts at simplification. We seem to either leave out something important or put readers to sleep with unnecessary details. Please let us know if there is information you would like added or explained in greater detail.

Proposition 2 1/2

"My taxes increased by more than 2.5%! How is that possible?"

One thing we should make clear is the intent of Proposition 2 1/2 (PDF) - the link sends you to the long explanation, the short (ish) explanation is that Proposition 2 1/2 is not tax limitation legislation like California's Proposition 13 and Florida's so-called "SOH." Prop. 2 1/2 is more a limit on spending. The legislation dictates a city or town cannot raise in property taxes (the total tax levy) more that 2.5% of the total value of the town in any single year, that 2 1/2% of the total value of the town's taxable real estate is the Levy Ceiling. Further, with a number of annual built-in exceptions and provisions for overrides and exclusions, it cannot increase its tax levy by more than 2 1/2% a year or it will surpass its Levy Limit.

Falmouth would have to nearly triple its spending to hit the levy ceiling but, as with most communities in Massachusetts, is frequently up against its annual levy limit. Why?... For something with such a major impact on municipal finance the 2.5% figure is purely arbitrary; at the time the legislation was written there was no formula to arrive at the 2.5% number, it just seemed appropriate to the authors and was voted as written. Like all limits on spending, it makes no sense without limits on costs. But... we have it and work within its limitations as best we can.

Spending Limitation

When we use the term a spending limitation we mean spending through taxation or the tax levy. California and Florida limit taxes on an individual's property and link the tax to the property's value at the time of acquisition. Using the California and Florida models your neighbor and you could have identical properties with the same market value but have very different taxes depending on how much it was worth when you purchased it and how long you have owned it. In those states a home worth $2,000,000 could have a smaller tax bill as a home worth $200,000.

Values & Tax Rate

In Massachusetts real estate is taxed based on its market value but the Town cannot raise more money in taxes simply because the Town as a whole increases in value due to increased demand or inflation. When values go up the tax rate must go down proportionally. The same is true but in reverse when values drop; the tax rate increases as values decrease as long as spending remains unchanged.

Built-in exceptions that allow a spending increase of more than 2.5% of the prior year's tax levy.

Growth / New Growth

Property that is being taxed this year for the first time - aka- "growth" or "new growth." These properties include new homes, additions and new subdivisions, previously tax-exempt properties that have been sold to a taxable entity. Without a provision for taxing "growth" Prop. 2 ½ would prevent towns from generating revenue from newly developed or improved properties and eventually services demanded by those new properties would overwhelm the community's finances.

Cape Cod Commission - the Cape Cod Commission charges its members for services; that charge is in effect an override and continues as part of the tax levy.

Overrides & Exclusions

Falmouth has voted 2 overrides and a number of debt exclusions (PDF) in the 28 years proposition 2 ½ has been in effect. The link takes you to our annual filing of debt exclusions that are currently budgeted, the "DE-1 (PDF)."

Override Number 1 for $806,250 was voted 20 years ago with the stated purpose of supplementing the operating budget.

Override Number 2 for $980,000 was voted 11 years ago to augment the school budget.