Local Fiscal Response to State Preemption: A Case Study of Massachusetts' Proposition 2½ Tax Referendum.

This article examines how local governments in Massachusetts respond to state fiscal preemption—specifically tax and expenditure limits (TELs) imposed by Proposition 2½—through direct democracy mechanisms such as tax referenda. Using data from 320 municipalities between 2010 and 2021, the study analyzes the two-stage referendum process involving local officials who propose overrides or exclusions to property tax limits and voters who approve them. Findings indicate that municipalities are more likely to seek tax referenda when fiscal slack resources (e.g., cash reserves, budget stabilization funds, and excess levy capacity) are low, while higher property tax burdens discourage initiating referenda. The study also highlights that voter approval is less influenced by fiscal need or tax burden factors and more by local political culture, and that federal policies like the 2017 Tax Cuts and Jobs Act affect the salience of property tax deductions in referendum decisions. Overall, the research underscores the complex interplay between fiscal constraints, local autonomy, and voter behavior in the context of state-imposed tax limits.