New London — The city stands to gain about $10,000 in annual taxes as a result of scrutiny of the tax-exempt status of rental properties owned by the New London Homeless Hospitality Center.

Homeless Hospitality Center Executive Director Cathy Zall said she now realizes that since two of the center’s five multi-family rental properties were subsidized by state or federal funds, they are by state statute not eligible for tax-exempt status.

She said the center has decided to drop plans to apply for tax-exempt status for a recently purchased home at 195 Williams St. and will be placing a home at 73 Broad St. back on the tax rolls by the end of the month.

Both properties are aimed at housing low-income tenants or the homeless, part of the overall mission of the homeless center to find or create permanent homes for the homeless.

Zall said the center had obtained a $300,000 grant for the Williams Street home through the federal Low Income Housing Tax Credit program of the Connecticut Housing Authority.

The four-family Broad street home was purchased and renovated in a similar method.

After the center’s most recent purchase, Mayor Michael Passero said he spoke with City Attorney Jeffrey Londregan and met with Zall last week for further explanation about whether the tax-exempt purpose was within the letter of the law.

He said statute revealed the properties should not be tax exempt.

“By the time we met, we came to the same conclusion, at least partially,” Passero said of his meeting with Zall.

Zall said she spoke with Peter Battles, president of the Eastern Connecticut Housing Opportunities, or ECHO, which uses state money to rehab deteriorating homes to rent or sell to low-income tenants.

He had filled her in on state rules regarding tax-exempt status.

While some properties used for a charitable purpose are exempt, a portion of the state statute reads, “housing subsidized, in whole or in part, by federal, state or local government and housing for persons or families of low and moderate income shall not constitute a charitable purpose under this section.”

“In good faith, we had proceeded as we purchased them to apply for tax-exempt status,” Zall said. “We are now doing the proper thing and paying taxes on those two properties. We’re trying to be above board.”

Passero said since 44 percent of the properties in the city already are tax exempt and benefit from city services, anything falling off the tax rolls tends to draw attention.

“From what the law director said, this appears to be a mutual mistake based on a lack of information,” Passero said.

New state Office of Policy and Management forms recently submitted to tax assessors across the state might clear up any future mishaps, he said.

The new forms provide detailed information that would allow a tax assessor to recognize that a property was subsidized, where in the past it had not, he said.

Passero said he forwarded the new forms to the Homeless Hospitality Center and any other organizations where there may have been a similar oversight.

“The organization is an asset to the city. It’s clear to me the Homeless Hospitality Center was doing what they only thought was appropriate for their goals and the assessor was going on the information she had,” he said. “It’s ironic that OPM stumbled onto the same problem.”

Zall said she planned to discuss all of the center’s properties with the board of directors at their next meeting.

She said three other rental properties, including one home housing veterans, were not publicly funded but rather purchased and rehabbed with a mix of charitable donations and center funds.

She said there would be more investigation to ensure they were following state law when they gained tax-exempt status for rental properties at 19 Steward St. and 70 Mountain Ave.

Zall said providing a mix of housing for all income levels in the city is an important issue and one the center has tried to address.

The center will pay $6,168 in annual taxes at the 73 Broad St. property based on an assessment of $152,460, according to the tax assessor’s office.

The annual tax bill for 195 Williams St. is $3,996, based on a $98,770 assessment.

Zall said the center will not have an issue paying the taxes on the two properties.

Looking ahead at a possible rise in the assessed value of the Williams Street property once renovations are completed, Zall said there is a provision in state statute that allows the assessor to base the tax rate on the income of the property, rather than the assessed value.

g.smith@theday.com