'The Day Is Coming': Peabody Faces Tax Override Threat As Levy Capacity Dwindles

PEABODY, MA — Peabody Mayor Ted Bettencourt issued another stark budget outlook to the City Council, telling Councilors that escalating health insurance premiums will account for nearly all of the typical annual budget increases and that a Proposition 2 1/2 override is likely going to be necessary in the next couple of years as the city's remaining tax levy capacity is exhausted.

"The day, certainly, is coming where we're going to be a Prop 2 1/2 community unless things change," he told the Council during a Committee of the Whole update heading into budget season. "We have $8-plus million right now (in unused tax levy capacity). It's hard to say which way this budget is going to go. There have been some reductions that we could be successful in making. There could be some state aid coming, where there could be some adjustments.

"We all know that the levy capacity is not going to be there for us much longer. But I don't want to put an end date on it."

Peabody is among the North Shore cities and towns that have charged residents below the maximum limit allowed on property taxes in recent years — creating what is called "excess tax levy capacity," essentially the difference between how much the city collects in property taxes compared to how much it could collect under maximum taxation.

Bettencourt told the City Council that capacity has dropped from $18 million to $8 million in recent years. With health insurance costs expected to rise about $6 million this year alone — and average budget increases in recent years of $4 million to $5 million overall — the remaining capacity will be strained.

"It's very real for the city of Peabody," Bettencourt said. "Cities and towns are dealing with that on a year-to-year basis. Cities and towns are now routinely going for overrides.

"We haven't had to do that in many years. But that's something that we may have to look at in the very near future."

Bettencourt said insurance rates for municipal employees are expected to rise 11.1 percent next year, after rising 14.5 percent in 2026. He said budget analysts have said there will be "no end in sight to the problems created by health insurance."

"That is our No. 1 budget driver," he said.

He said budget pressures are also coming from reductions in state school aid, with Peabody being designed as a "minimum aid community" that is set to receive $75 in Chapter 70 funding per student for next year, down from $125 in years past.

He said the city is appealing that designation.

"If that holds, that will cause a real problem with our school budget," Bettencourt said. "And that will trickle into our city budget."

He said other factors are MWRA water usage increases because of the low flow levels in the Ipswich River Watershed, increases in trash removal because of prevailing wage increases for Republic Services, and a $1.27 million bill from Essex Tech for Peabody students who attend that school — which he said is nearly a 20 percent increase from previous years.

Bettencourt said some numbers will change between now and when the final budget proposals are made in May. But he wanted to present the forecast to the City Council early to prepare members for harsh realities and the potential need to wipe out most, if not nearly all, of the remaining excess tax levy capacity for Fiscal 2027.

"We're looking in approximately two years to have a real problem," he said. "What we're working on is trying not to have a cliff where in two years we're presenting a budget that is a significant gap."

Bettencourt said for the first time this year, he has asked department heads to reduce expenses by 5 percent instead of presenting a level-services budget.

He noted that some of the municipal unions have been helpful in looking at ways to reduce expenses — including those on health insurance.

"We're all in this together," he said. "These are difficult decisions."