How The Tax Levy Is Calculated

Proposition 2 1/2 was enacted in 1980 in order to limit the property tax levy that towns can raise. The levy is the revenue a community raises through real and personal property taxes, and it is usually the largest source of revenue for a town.

What is Proposition 2 1/2?


The Levy Limit is the maximum amount of revenue a town can levy in a given fiscal year. It is based off of two factors: the previous fiscal year's levy limit, which is automatically increased by 2.5% annually, and the new growth factor.

What is the Levy Limit and how is it calculated?


New Growth is a dollar increase in a community's tax levy that reflects the increases in the assessed value of the tax base in the previous fiscal year. The extra assessed value (due to new development) is multiplied by the previous year's tax rate to arrive at a dollar value to be added to the levy limit as new growth. 

What is New Growth and how is it calculated?


The Levy Ceiling is the maximum amount that the levy limit can be in a fiscal year. It's a restraint on the size of the levy limit. 

What is the Levy Ceiling and how is it calculated?


A community can Levy Above its limit/ceiling by having a vote at a refferendum eleciton to either levy above (override) or below (underride) the annual levy limit.

How can a community levy above its Levy Limit/Ceiling?


Levy Limit Override or Underride can be used by voters to permanently increase or decrease the annual levy limit.

What is a Levy Limit Override or Underride?


An Exclusion can be voted on to provide a community with additional financing operations for a temporary period of time. Exclusions come in two varieties: Debt and Capital.

What is an Exclusion?


There are three basic differences between Overrides vs. Exclusions. First: Overrides can be used for any spending, whereas exclusions can only be used for capital spending.Second: Overrides permanently increase the levy, and exclusions are temporary. Third: Overrides cannot result in a levy above the levy ceiling, while exclusions can result in a levy above the levy ceiling. 

Differences between an Override and an Exclusion


Excess Levy Capacity occurs when a community has a levy below it's levy limit. If the community chooses not to tax at its limit and leave the excess levy capacity, that tax revenue is gone forever. Communities can however levy up to the full amount based on the previous year's excess levy capacity.

What is Excess Levy Capacity?