AUGUSTA – Members of the Taxation Committee held a work session on a bill that would repeal the state property tax exemption available to hospitals on leased land Wednesday.

Lobbyists for the Maine Municipal Association and the Maine Hospital Association have squared off on the legislation.

All nonprofits, including hospitals, are exempt from paying taxes on land they own, but an extension to leased property for hospitals was made by the 106th Legislature in 1974.

Geoff Herman of the Maine Municipal Association supports the bill to repeal the exemption.

“I think it was originally intended to relieve hospitals from having to pay personal property taxes on new equipment, such as X-ray machines, that were too expensive or experimental to purchase at the time,” Herman said. “But the paragraph added to the books also applies to real estate.”

Mary Mayhew of the Maine Hospital Association opposes the change and said if hospital costs increased, the burden would be passed on to consumers.

“Repeal of this exemption will affect many hospitals throughout the state and directly impact the cost of health care in those communities,” she said at a public hearing held last week.

Tax assessors from Lewiston and Farmington said they would not immediately be affected by any law change, because the local hospitals are not leasing any property.

During the public hearing, representatives of Maine Coast Memorial Hospital in Ellsworth and Mid Coast Hospital in Brunswick said they would be affected. In Ellsworth, the hospital leases three buildings, totaling more than 20,000 square feet, and in Brunswick, the hospital leases 80,000 square feet, according to written testimony.

Committee members debated the measure but put off making a decision.

Most agreed the law should be changed because it treats hospitals differently from other nonprofits, but they disagreed on how to implement a repeal of the exemption.

“For me, the question is more, how do we do it in a way that maybe will give hospitals time to adjust?” Rep. Patsy Crockett, D-Augusta, said at Wednesday’s session.

Rep. Kathleen Chase, R-Wells, said it should definitely not be retroactive.

“Just because it’s been this way, it doesn’t mean that it should have been and we cannot ignore it,” she said. “From this day forward we should follow the law as intended.”

Rep. Brian Langley, R-Ellsworth, said while he supports making the law fair, the timing is poor.

“If we didn’t owe them anything, then I would be on board,” he said, referring to the hundreds of millions of state and federal dollars owed to hospitals for past MaineCare services.

The bill will be scheduled for another work session soon, when the committee is expected to take a vote.

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