Other states watch as 'liberal' Massachusetts axes its taxes

Shock waves of fiscal conservatism, signaled by California's Proposition 13 in 1978, have reached into what is considered the nation's most liberal state -- Massachusetts.

The Bay State's Proposition 2 1/2, approved by voters Nov. 4, is beginning to force one free-spending Democrats here to reshape their social spending ways that may set new directions for the party.

The ballot jolt to the liberal leaders of Massachusetts, which has the second-highest property tax in the nation, may have more of an impact than just emptying municipal cupboards and forcing local officials into near panic.

In the state that is home to Sen. Edward M. Kennedy, US Speaker of the House Thomas P. O'Neill Jr., Boston Mayor Kevin H. White, and a legislature that is over 80 percent Democratic, an active post-election fiscal debate is under way, agitated by an immediate mass transit budget crisis.

Forced to make spending cuts, the state's political leaders may have little choice but to take a fresh look at cherished social programs. At stake, for instance, are patronage jobs in Boston, schoolteacher positions in Marlboro, and tougher negotiating with public worker unions almost everywhere.

Whether these possible new Democratic moves locally will "trickle up" into the national scene may become clearer in coming months. After Ronald Reagan won in heavily Democratic Massachusetts, the s tate's junior US senator, Paul E. Tsongas (D), explained to an interviewer: "New Dealism bumped heads with the realities that were out there."

One reality is that powerful special interests, such as public employee unions, appear to be losing their political grip on the Bay State's Democratic leaders, who are faced with a budget-slashing mandate from voters. That mandate , the voter-initiated Proposition 2 1/2, was swept into law by a 3-to-2 margin. It limits real estate taxes to no more than 2.5 percent of the total market value of all assessed property. California's Prop. 13 set a 1 percent limit.

But California had a nearly $6 billion state surplus to help local communities make up for at least a part of the loss in property tax. In contrast, the Bay State's financial coffers are nearly bare.

Though Prop. 2 1/2 will not take effect until July, the budget-slashing mood is already taking root during a mass transit crisis.Like Boston's revolutionary Tea Party rebels, mayors and selectmen in the Greater Boston area have refused to hand over any more of their property taxes to keep buses, subways, and trains running through the end of December.

As a foretaste of things to come, the funding crisis seems headed to a confrontation between the powerful mass transit unions and their often cozy Democratic allies in the state government, including perhaps labor-booster Gov. Edward J. King.

Public employee unions lost two potent levers in the passage of 2 1/2. Besides the property tax ceiling, one provision strips police and firefighter unions of the right to binding arbitration in contract bargaining stalemates. Another ends the fiscal independence of elected school boards from municipal budget control, thus weakening teacher union influence.

In town halls and in the state legislature, three basic responses are emerging to the challenge of Prop. 2 1/2:

* Go along with budget and service cuts, hoping for a voter backlash and a return to social liberalism.

* Minimize political impact from special interests who will be angered at reducing spending in such areas as environmental protection, schools, patronage, union jobs and benefits, and human services.

* Circumvent the tax revolt by increasing taxes in other areas in order to keep spending at present levels.

Already being seriously discussed is possible broadening of the state's limited 5 percent sales tax. Although Massachusetts has one of the nation's highest total tax burdens, its sales tax yield is one of the lowest, ranking 45 th among 47 states with such levies.

Would-be tax-choppers in other states with high real estate taxes, including some where proposals identical to California's Prop. 13 failed earlier this month, are watching Massachusetts closely.

State residents will save a projected $490.3 million in lower real estate and motor vehicles excise taxes during the first year. This represents nearly 15 percent of the current annual combined property tax yield and 6.8 percent of what was brought in through all state and municipal levies in the year that ended June 30.

Massachusetts property taxes currently amount to $521.95 per capita, second only to Alaska's $807.81. The national average is $304.60.

Some 40.9 percent of all state and local tax dollars in the commonwealth come from levies on real estate. Massachusetts is outranked in this respect by neighboring New Hampshire (which has neither a personal income tax nor a general sales tax). The national average for property tax as a portion of total state taxes is 27 percent.

Particular hard squeezed by the newly imposed restraints will be older and larger communities like Boston, which stands to lose 60 to 75 percent of its current revenue.

Just how this will change the Democratic liberalism of Boston Mayor White is uncertain. So far, the mayor has left his options open by deferring tough decisions on spending cuts. He has appointed a task force to come up with recommendations.