Peabody Mayor Ted Bettencourt has warned that the city may need a Proposition 2 1/2 override in the next few years due to the dwindling city's remaining tax levy capacity. This comes as health insurance premiums are expected to increase significantly, accounting for nearly all of the typical annual budget increases. The city has $8-plus million in unused tax levy capability, which has dropped from $18 million to $8 million in recent years. With health insurance costs expected to rise about $6 million this year alone, the remaining capacity will be strained. Bettencourts also mentioned reductions in state school aid, which could cause a problem with the city's school budget. He has asked department heads to reduce expenses by 5 percent instead of presenting a level-services budget.