Preston - Several months after the town received approval of a $4 million state loan to assist with the cleanup of the former Norwich Hospital property, town officials received approval of "fabulous" loan terms from the state Department of Economic and Community Development.

The loan requires a $4 million matching share from the town, but the Preston Redevelopment Agency could not request the money from residents through a bond measure without first knowing the state's loan terms, First Selectman Robert Congdon said.

The town can match the loan fully with bond money, or it could attempt to apply for new federal or other grant money as part of the match. Congdon said the state frowns on attempts to use older grants - the town has received about $1 million in federal grants thus far for the cleanup.

Under the loan terms, Preston would pay 1.5 percent interest, but both principal and interest payments would be deferred for five years. For every 100 permanent jobs created with development of the former hospital property, $1 million of the loan would be forgiven outright.

If the town sells a portion of the property, it would be allowed to use that money to pay off all town expenses - including a portion of the matching funds - before being required to pay the state loan. The town's expenses include all legal and real estate brokerage fees and the town's obligation to pay off a back legal bill to the law firm Shipman & Goodwin.

In a settlement with the firm, the town has agreed to pay the firm $5,700 per acre of hospital property sold.

Town officials received a letter from DECD officials Thursday approving the loan terms. The PRA next will have to determine how to come up with the matching share and present the proposal to residents at a town meeting.

Congdon said if the town bonds the entire $4 million, that money would be put toward the cleanup, and with the loan money and grants in hand, it would cover the costs of environmental remediation and demolition of all but four buildings on the 393-acre property.

"They negotiated a great deal for the town," Selectman Steve Sinko said of the PRA.

PRA Chairman Sean Nugent was not available for comment Thursday night.

c.bessette@theday.com