A levy limit underride (Ch. 59 Sec. 21C(h)) reduces the amount of property tax revenue a community may raise and, like an override, has a permanent impact on taxing authority, but in the opposite direction. If the loss of tax revenue through an underride occurs after approval of the annual budget, it would prompt a corresponding reduction in expenditures, unless the community has significant unused levy capacity.
- LEVY LIMIT: This is the maximum amount of money that a municipality can get from property taxes in any year for its budget. A simplified calculation goes like this: the previous year’s levy limit, plus a 2.5% increase, plus whatever new growth happened over the past year.
- THE LEVY CEILING: This is what determines the maximum amount a levy limit can be. It is 2.5% of the full cash value of all taxable property in a municipality. This number changes every year. Think of these as nesting dolls: the levy limit must always be smaller than the levy ceiling.