New London — The state legislature has approved a shift in the way municipalities are reimbursed for tax-exempt properties, and New London stands to be one of the major beneficiaries.

The bill passed the Senate and House this past week with bipartisan support and creates a tiered payment in lieu of taxes, or PILOT, program that would boost aid to better offset tax losses in distressed municipalities and those cities and towns with large amounts of nontaxable properties that include state-owned land, colleges and hospitals.

Both New London and Norwich are in line for a significant boost in funding if the measure is signed by the governor and funded. New London, where 44% of the land is tax-exempt, is in line to receive $2.36 million more in PILOT funds over this year if the program is fully funded.

State Sen. Cathy Osten, D-Sprague, who voted in favor, said the Appropriations Committee is looking at ways to fund the estimated $137 million needed to fully fund the legislation. Work will continue in the coming weeks, leading up to a budget proposal.

The bill contains a special provision that ensures PILOT payments continue to flow to New London for the State Pier property. The formerly state-owned property that is now the proposed site of a major reconstruction project was recently transferred to the quasi-public Connecticut Port Authority and is no longer subject to PILOT funding.

New London Mayor Michael Passero said he is relieved to be able to include the $125,000 in PILOT funding for the State Pier property but said the city would look forward to the more substantial changes outlined in the bill.

The PILOT program is supposed to reimburse municipalities for losses in revenue based on a formula that authorizes 100% reimbursement for prison property, 77% reimbursement for colleges and hospitals and 45% for all other state-owned property.

But the funding has barely reached the 25% mark, state Sen. Martin Looney, who introduced the PILOT legislation, said in his testimony to the General Assembly.

In fiscal year 2021, the state budget provided $158 million in funding for PILOT. According to the most recent data for fiscal year 2022, $613 million is needed to fully fund the PILOT program, Looney said.

“This underfunding raises the mill rate in these municipalities, making them more expensive in which to locate businesses and placing an excessive burden on taxpayers least likely to be able to afford it. Simply, this underfunding makes a regressive tax more regressive still,” Looney said in testimony. “The proposal in this bill is straightforward. Because it will probably not be realistic to fully fund PILOT at this time, this language prioritizes funding to the struggling communities, large and small, whose grand lists are the least robust.”

Starting in 2022, the bill creates three tiers of PILOT funding based on the equalized net grand list, or ENGL, per capita — a measure of property wealth available in a municipality to support each resident. Tier 1 includes municipalities with less than $100,000 ENGL per capita. Tier two includes municipalities between $100,000 and $200,000, and Tier 3, municipalities with more than $200,000.

Under the bill, towns like New London in Tier 1 would receive 50% of their calculated state PILOT funds. Tier 2 would receive 40% and Tier 3 would receive 30%. Municipalities also can qualify for Tier 1 if they are an Alliance District, one of the lowest-performing school districts in the state, or if 50% or more of the property in the municipality is state-owned.

“I am truly optimistic that the effort this legislative session seems to be bipartisan and seems to have strong support,” Passero said. “Now we just have to see if they can come to an agreement on how they fund it.”

Passero said cities like New London are disproportionately impacted and become distressed in part because of the large number of tax-exempt properties. “We have to carry this burden of shame of being a distressed municipality only because Hartford has taken half of our properties off the tax list. Anything they can do to fix that inequity helps,” he said.

The bill passed in the House 125 to 24, and in the Senate, 28 to 7. The bill passed on March 1 also ends liens on homes of welfare recipients and mitigates “tax consequences” for Connecticut residents working remotely out of state.

State Sen. Paul Formica, R-East Lyme, voted against the measure for a variety of reasons but ultimately said the proposal on PILOT funding amounted to “just another unfunded promise.”

“I thought it was a premature bill to vote on and a political bill. There was never any concrete proposal on how to fund (PILOT),” Formica said.

He said while he agreed with some provisions, such as the releasing liens for property owners on state-assistance, the entire package should have been voted on in three different bills but was instead rushed through to a vote. He said one portion of the bill provides $300 million in tax credits for high-income earners in the state who worked remotely because of COVID-19.

Formica said he was concerned the PILOT proposal would lead to taxes that would harm the state’s middle class. The governor’s budget proposal, he said, already relies on one-time revenues and revenue streams, such as marijuana and online gambling, that have yet to come to fruition.

g.smith@theday.com