Proposition 2½ places constraints on the maximum amount of the tax levy raised by the Town and on how much the levy can be increased from year to year. It allows a town to annually increase its levy by 1) 2.5% of the prior year's levy, and 2) an additional amount based on the valuation of new construction and other allowable growth in the tax base (new growth) that is not the result of revaluation. The annual levy limit may never exceed the overall levy ceiling, which is 2.5% of the full and fair cash value of a town's total taxable value.
With Proposition 2½, a minimum 2.5% tax increase can be expected each year. Subject to voter approval, Proposition 2 ½ allows communities to raise funds for certain capital projects above the amount of their levy limit. An exclusion for the purpose of raising funds for debt service costs is referred to as a debt exclusion. The additional amount for the payment of debt service is added to the levy limit for the life of the debt.
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