Our town leaders are fast at work preparing their proposed budgets for fiscal year 2026 to present to Town Meeting in May of next year. In doing so, they recognize that the overall budget must be crafted to ensure that it will not cause real estate taxes to increase by more than 2.5%. This has been central to the construction of all of Marblehead’s annual budgets for town meetings since 1982, the first year that General Laws Chapter 59, Section 21C — familiarly known as Proposition 2 1/2 — went into effect.
Prop 2 1/2, an initiative petition passed by Massachusetts voters in 1980, was led by Marblehead’s own Barbara Anderson and her organization, Citizens for Limited Taxation. A former member of the town’s Finance Committee, Anderson was a fierce advocate for imposing annual limits on the increase of local real estate taxes, and her tireless work on this issue resulted in such a mandate, which has endured for over 40 years.
We at the Current support the basic premise that keeping annual limits on the increase of real estate taxes is good for Marblehead taxpayers, but we also wonder if the time has come for our legislators to consider possible modifications of such limits to reflect the reality that certain fixed costs of the town’s annual budget — over which we have little or no control — are increasing at such a rate as to make it impossible to provide annual pay increases to our valued employees that will at least keep up with the increases in the cost of living.
By way of some examples:
— Health insurance premiums for town employees now constitute approximately 13% of our total budget, and they are forecast to increase next year by 7%.
— Mandated contributions to fund our retirement account are just under 5% of the budget, and they are scheduled to increase by 8.6% pursuant to the required funding schedule in order to be fully funded by 2037.
— The total waste disposal budget, which accounts for 2% of the overall budget, is expected to increase by 10.5%.
The combination of these three expense categories alone represents approximately 20% of the town’s budget, meaning that the remaining 80% must increase by less than 2.5% to comply with existing limitations under state law.
In an ideal world, all of the town’s obligations would increase by not more than 2.5% each year, which would provide greater opportunity to negotiate employee contracts to try to keep up with increases in the cost of living.
And yet, further complicating matters and adding stress to the town’s budget, there is the outcome of the teachers strike, which hopefully will have been settled by the time this issue of the Current arrives at our readers’ doorsteps.
Assuming a new contract calls for pay increases in excess of 2.5%, the town is going to be called upon to decide whether to approve a general tax override to fund it, as there currently is no ability to cover such costs within the existing constraints on the annual budget. If past history is any guide, there is little reason to believe an override will pass.
For all of these reasons, we ask if it now makes sense to adjust the statute to take into account the challenges presented to Marblehead and all other Massachusetts municipalities so that the underlying intent of Prop 2 1/2 remains intact while recognizing the fixed cost realities confronting us all.
We do not presume to have the answers, but we do believe the time has come to have this discussion.
