The proposal by the speaker of the state's House of Representatives to have nonprofit hospitals and colleges pay property taxes is getting a mixed reaction in New London, where about half of the city's land area is tax-exempt.

While Mayor Daryl Justin Finizio welcomed the proposal, Mitchell and Connecticut colleges and Lawrence + Memorial Hospital are adamantly opposed. The colleges and hospital said being taxed would reduce their ability to provide community services such as financial aid for students and public health education and outreach.

Under state Rep. Brendan Sharkey's plan, which will get a public hearing Friday at the state Capitol, nonprofit hospitals and colleges would be fully taxable by 2018. Currently, they are exempt from paying property taxes; the state reimburses municipalities for 32 percent of the taxes the exempt property would have otherwise generated.

The bill would reverse the current process for Payment in Lieu of Taxes (PILOT) by partially reimbursing the nonprofit hospitals and colleges for their payments instead of partially compensating the municipality for taxes not collected.

Sharkey, a Democrat who represents Hamden, said he has thought about addressing this issue for a number of years but that it was a letter from Hamden Town Council President James Pascarella that got him started this year. Pascarella said he was frustrated that Quinnipiac University consumed a lot more resources than it provided. Nonprofits use community services such as fire and police but unlike large companies aren't paying property taxes.

The whole issue demonstrates the "absurdity of the property tax system" in this state, Sharkey said.

"... New London has no other alternative than to tax everyone else for their survival," Sharkey said. "It screams for reform of our overall property tax system."

L+M and the Connecticut Hospital Association oppose the bill.

"Instead of demonstrating the will to fix the flaws in the property tax formula, the state is essentially kicking the can into the hospitals' and colleges' yard and asking us to assume still more responsibility for funding what the state should be responsible for," said William Stanley, vice president of development and community relations at L+M.

Nonprofits were given the property tax exemption because they serve cultural and charitable purposes that benefit the community as a whole, Finizio said.

"But when that many institutions go off the tax rolls, in particular where over half the land becomes not taxable because of this system, the flip side is there is harm being done to the community because it can't raise enough revenue to fund essential services," he said. "How will those institutions be if the city in which they reside is crippled by the lack of a tax base?"

Sharkey said the bill also makes sense because the distinction between nonprofit and for-profit hospitals is becoming more blurred these days "given the size of budgets and salaries as well as potentials for mergers that are possible in the state."

Sharkey said he spoke with several hospitals, including one major one, that said removing the tax exemption was a "logical next step."

"I haven't heard from all the hospitals, but of those that I have talked to, some are hesitant, others recognize this is probably the best way to go," Sharkey said.

Bearing the tax burden

In New London, the two colleges and L+M were assessed at $454 million in 2012.

If they were to be fully taxed, they would pay the city $12.5 million, according to Tax Assessor Paige Donovan. In 2012, New London's total PILOT reimbursement was $5.6 million.

Finizio said if the bill becomes law, he would use the additional money to adequately fund city services, restore the general fund balance and provide property tax relief to homeowners, rental property owners and small businesses "who for the last 100 years have borne the burden of providing all the tax revenue for the city government."

L+M, which doesn't have an agreement with New London to contribute any funds to the municipality, would owe $5.4 million if fully taxed.

The hospital's operating budget in fiscal year 2013 was $339.3 million, Stanley said.

In 2012, the hospital contributed $57.5 million to the community, he said, including community health programs, charity health care for the New London Homeless Hospitality Center, shortfalls from those who couldn't pay hospital bills and shortfalls in Medicare reimbursement. Last year, that number was $67.5 million, he said.

After losing state reimbursements for a state tax on hospitals and losses due to the federal Affordable Care Act, the hospital, if taxed, would suffer a negative impact on growth, services, staffing levels, programming and how much technology could be purchased, Stanley said.

"If you take $5.4 million away, it's not as though we won't feel it," he said.

Connecticut College, which has an agreement to contribute $12,500 annually to the city until 2017, would owe $5.8 million if fully taxed. Mitchell College contributes nearly $30,000 a year and would owe $1.1 million if fully taxed.

A $5.8 million tax would be "an enormous amount of money" considering the college's $130 million budget, said Paul Maroni, vice president of finance for Connecticut College.

About 70 percent to 75 percent of the college's budget goes toward payroll and financial aid, and the rest is put toward operating costs, Maroni said. The college already had to take funds out of its operating costs and apply them to financial aid this year because of the poor economy, he said.

The college also provides public services for the community, such as with student volunteers and acreage for parks, he said. He described the college as "self-contained," with its own security force, garbage collection, snow plowing and power plant.

A spokesman at Mitchell College referred questions to the Connecticut Conference of Independent Colleges, which represents 16 nonprofit colleges and universities. Its president, Judith Greiman, said her organization opposes the bill.

"It's not a good policy and it's a particularly bad time for both colleges and hospitals in terms of who we serve and what our roles are in Connecticut," Greiman said.

Finizio said he would like these institutions to look at the property tax situation more broadly than how it would affect them internally.

"Connecticut College wants top students to pay top dollar, Lawrence + Memorial wants to attract doctors and staff to work at their hospital," and they want people to come to the city to use the hospital, Finizio said. It is difficult to keep people coming to the city if it can't pay for services.

The Planning and Development Committee will hold its public hearing at 10:30 a.m. Friday at the state Capitol.

j.somers@theday.com