Question 5: what rewriting the state tax cap would mean for refunds and for the budget

NEW BEDFORD Massachusetts voters will decide Nov. 3 whether to rewrite Chapter 62F, the 1986 law that caps how fast state tax revenue can grow and sends the excess back to taxpayers. This is the third in a South Coast 360 series explaining each of the nine statewide questions on the ballot; earlier installments covered the all-party primary plan and Election Day voter registration.

Boston.com reported that Chapter 62F has produced a refund only twice: about $29.2 million in 1987 and about $2.94 billion in fiscal 2022, the largest in the law's history. The Tufts Center for State Policy Analysis attributes the 2022 surge in part to a strong stock market and federal pandemic stimulus. Today the cap ratchets up from the 1986 base with the growth in Massachusetts wages and salaries, and it can never go down.

Question 5 would change the formula two ways. First, instead of building on the previous year's limit, each year's cap would start from what the state actually collected the year before, grown by the average increase in wages and salaries over the most recent three years. Second, revenue from the 4 percent surtax on annual income over $1 million, the millionaires tax, would count toward the cap; the surtax itself would stay. The official summary from Attorney General Andrea Joy Campbell's office says that if collections top the new limit, "the excess amount would be refunded to taxpayers the following year." The changes would take effect July 1, 2027, and if any part is struck down, the rest stays in force.

A yes vote would change the limit on state revenue collection, tying it to prior year collections plus average wage and salary growth, and provide for a rebate of revenue exceeding that limit. A no vote would make no change in the law relative to state revenue collection. Those statements were written jointly by the attorney general and Secretary of the Commonwealth William F. Galvin.

The state's fiscal office describes the budget effect. The statement of fiscal consequences from the Executive Office of Administration and Finance says the proposal "would put stricter limits on allowable annual revenue growth available for budgeting" and "would reduce the amount of money available to support the state budget, which includes local aid for schools and municipal budgets." It would also shrink what goes into the stabilization fund, the rainy day reserve the state leans on in downturns.

In the official voter guide, the yes side, Taxpayers for an Affordable Massachusetts of Lowell, argues: "A YES vote sets reasonable limits on the growth of state government revenue and ensures that taxpayers receive refunds when the Commonwealth collects more money than it needs." The group also writes: "Massachusetts families are struggling with the rising cost of housing, groceries, and childcare. When government collects excess revenue, taxpayers deserve to get that money back instead of seeing it absorbed into a state budget that is growing faster than inflation." The group says the change would not cut spending for education, transportation or healthcare.

The no side, a committee called Protect Massachusetts' Future, argues: "Question 5 would put a strict limit on state revenue and investment, requiring repeated budget cuts." It says cities and towns "would have to raise property taxes or lay off teachers and firefighters." It also says, "Millionaires would get frequent tax rebates, while the rest of us pay the price." The argument was written by Colette Berard, a history teacher in the Andover public schools. The Massachusetts Teachers Association and the SEIU also oppose the question, and Doug Howgate of the Massachusetts Taxpayers Foundation told the state Senate the new formula could make state finances harder to manage.

The Tufts center, which modeled the proposal, projects refunds would trigger two to four times as often and return two to seven times as much money, averaging roughly $200 to $250 per taxpayer per year across refund and non-refund years, an effect on state revenue comparable to an income tax cut of about 0.15 to 0.2 percentage points. Its report faults the design: an unusual feedback loop weakens the link between revenue and refund size, and the formula offers little protection against refunds landing in years when collections are historically low. A bad year would lower the base, so the rebound year could easily top it and pay out just as the budget tries to recover.

The Legislature is considering a bill that would add new requirements for Chapter 62F refunds, which the Tufts center says could limit the impact of Question 5 if it passes. In May, a majority of the Special Joint Committee on Initiative Petitions recommended the Legislature take no action on the petition, sending it to voters.

For South Coast taxpayers, the choice on Nov. 3 is between more frequent refund credits and a state budget with more room to absorb a downturn. For South Coast cities and towns, the stakes run through the state budget itself: the fiscal statement says local aid for schools and municipal budgets is part of what a tighter cap would squeeze. Nothing changes before July 1, 2027, whatever the vote.

Label: Reported by us, from the town's posted records.