Massachusetts faces day of reckoning on 'Prop. 2 1/2' tax cut measure

Cutting a broad swath through the ranks of teachers, police, firefighters, and other municipal employees, Massachusetts' tax cut measure Proposition 2 1/2 takes effect today.

"Prop. 2 1/2," as it is called, was endorsed by a margin of nearly 3 to 2 on last November's state ballot. The controversial measure, patterned after California's much- publicized Proposition 13, compels all Massachusetts cities and towns to limit total annual property tax levies to no more than 2.5 percent of the full cash value of all real estate within their boundaries.

Hundreds of city and town employees across the state have been laid off, and services reductions such as shorter library hours and postponed road repairs already have taken place, in anticipation of this day. Dozens more public employees may face a similar loss of job.

Until now, Massachusetts property taxes have been exceeded only by Alaska's, and they have accounted for some 46.2 percent of total state and local tax dollars. Although estimates vary as to the eventual impact of Prop. 2 1/2 on local governments, it is generally agreed that municipalities stand to lose close to $600 million in revenue the first year.

Some of this loss seems certain to be made up by the commonwealth through increased state aid. But there is increasing uncertainty about how much and how soon additional funding will be forthcoming.

Massachusetts begins fiscal 1982 on July 1 without an approved budget. State lawmakers are deadlocked on dozens of appropriation items and spending policies, including aid to cities and towns. The Senate has approved a state aid allocation that exceeds by some $300 million the more than $1.6 billion provided for fiscal 1981. The House insists on increasing this aid by only $200 million.

Unless this and other substantial differences in the two versions of the budget are resolved, or unless the two chambers can forge an agreement on an interim budget, most of the commonwealth's more than 80,000 employees and 120, 000 welfare recipients face payless pay days.

While some cities and towns -- especially those which will not be hard hit -- have been trimming their spending sails as needed, many waited until almost the 11th hour to shape their operating budgets. They hoped that additional state aid would help make it possible to avoid some layoffs and service cuts. They now have little choice but to reduce payrolls, in some instances almost overnight.

Dozens of laid-off municipal workers could be recalled if the legislature increases state aid by the proportions favored by the Senate, or at least by a greater amount than the House approved. Such a compromise, however, might necessitate lopping off up to 3,800 state workers or raising state taxes. Prospects for the latter appear less than slim. All 240 legislators must stand for reelection next year. And a hike in state taxes would anger boosters of Prop. 2 1/2, who, having capped local taxes, now are plotting a drive to curb state spending.

Dozens of proposals, ranging from minor changes in Prop. 2 1/2 to its outright repeal, have been filed b y lawmakers. But none have been approved thus far.