Proposition 2 1/2 Override Primer

What is an Override?

Proposition 2¹⁄₂ allows a community to assess taxes in excess of the automatic annual 2.5 percent increase and any increase due to new growth by passing an override. A community may take this action as long as it is below its levy ceiling, or 2.5 percent of full and fair cash value. An override cannot increase a community’s levy limit above the level of the community’s levy ceiling.

When an override is passed, the levy limit for the year is calculated by including the amount of the override. The override results in a permanent increase in the levy limit of a community, which as part of the levy limit base, increases at the rate of 2.5 percent each year. A majority vote of a community’s selectmen, or town or city council (with the mayor’s approval if required by law) allows an override question to be placed on the ballot. Override questions must be presented in dollar terms and must specify the purpose of the override. Overrides require a majority vote of approval by the electorate.

What is a Debt Exclusion? What is a Capital Outlay Expenditure Exclusion?

Proposition 2¹⁄₂allows a community to raise funds for certain purposes above the amount of its levy limit or levy ceiling. A community can assess taxes in excess of its levy limit or levy ceiling for the payment of certain capital projects and for the payment of specified debt service costs. An exclusion for the purpose of raising funds for debt service costs is referred to as a debt exclusion, and an exclusion for the purpose of raising funds for capital project costs is referred to as a capital outlay expenditure exclusion. Both exclusions require voter approval with very limited exceptions.

The additional amount for the payment of debt service is added to the levy limit or levy ceiling for the life of the debt only. The additional amount for the payment of the capital project cost is added to the levy limit or levy ceiling only for the year in which the project is being undertaken.

Unlike overrides, exclusions do not become part of the base upon which the levy limit is calculated for future years. Reimbursements such as state reimbursements for school building construction are subtracted from the amount of the exclusion. A capital outlay expenditure exclusion or debt exclusion is effective even in the rare case when the exclusion
would bring the community’s levy above its levy ceiling.

Both of these exclusions require a two-thirds vote of the community’s selectmen, or town or city council (with the mayor’s approval if required by law) in order to be presented to the voters. A majority vote of approval by the electorate is required for both types of exclusion.
Questions presented to exclude a debt obligation must state the purpose or purposes for which the monies from the debt issue will be used. Questions presented to exclude a capital outlay expenditure exclusion must state the amounts and purposes of the expenditures.

Source: DOR, Levy Limits: A Primer on Propositoin 2 1/2