Proposition 2½ and Debt Exclusion Explained
Proposition 2½ limits the amount of property tax revenue a community can raise through real and personal property taxes. The amount raised is referred to as the "Tax Levy." The maximum amount a community can levy in any given year is called the "Levy Limit." Proposition 2½ limits how much the Levy Limit can be increased from year to year.
Under Proposition 2½, a community’s levy limit increases annually by two factors:
- An incremental increase of 2.5% of the prior year’s Levy Limit (hence the name “Proposition 2 ½”); and
- A dollar amount derived from the value of new construction and other growth in the local tax base since the previous year, referred to as “New Growth.”
A community can exceed its Levy Limit for limited reasons and only with voter approval. One such reason, called a Debt Exclusion, allows a municipality to raise funds outside the Levy Limit for the limited period of time needed to repay the debt and interest on a loan for a particular capital purpose.
In Wrentham’s case, the Debt Exclusion would allow funds to be used to pay for its allocable share of the Tri-County School Building Project debt. The additional amount would be raised outside of the Levy Limit for the life of the debt only. Stated differently, Debt Exclusions do not become part of the base used to calculate the annual 2.5 % increase in the Town’s Levy Limit. Instead, the increase is temporary and lasts only for the life of the bonds.
THE BALLOT QUESTION
Wrentham voted in favor of the Tri-County School Building Project in October 2023. Now, residents are voting on whether to authorize the Town to raise the amount needed, outside of the Levy Limit, to make principal and interest payments on the 30 year bonds. Each year, the Town would add to the total amount of the Tax Levy the specific amounts needed for that year to pay the annual principal and interest payment. If no debt exclusion were used, the Town would need to absorb the costs of those annual payments within the existing Tax Levy. Based upon the size of the debt payments, it is the Town’s position that raising such funds within the Levy Limit would reduce the amount of funds available for Town operations, services and other projects. Departments such as elementary education, police, and fire may be significantly impacted.
WHAT DOES VOTING "YES" ON A DEBT EXCLUSION QUESTION AT THE BALLOT MEAN?
A YES vote on debt exclusion will allow the Town to avoid absorbing the cost of the project within the existing tax levy which it cannot afford without reductions in staffing and services. Impacted municipal services would include Wrentham Elementary Schools, Police, and Fire if the vote does not pass.
WHAT DOES VOTING "NO" ON A DEBT EXCLUSION QUESTION AT THE BALLOT MEAN?
A NO vote would force the Town to absorb the cost of the project within the existing tax levy leading to reductions in staffing and services due to budget cuts. Impacted municipal services would include Wrentham Elementary Schools, Police, and Fire.
