Preston - A split Board of Finance decision to forward only the request that the town borrow $8 million to continue the cleanup of the former Norwich Hospital to a town meeting and referendum left legal questions late Thursday on whether the action would be legal.

Preston Redevelopment Agency attorney Bruce Chudwick had advised the Board of Finance that it would have to recommend approval of the loan in order to send it to a town meeting and referendum.

But the board voted down the approval, and voted 4-2 only to pass along the request, with members Norman Gauthier and Andy Bilodeau voting against the resolution.

The controversy arose during a lengthy joint meeting of the boards of finance and selectmen to hear a presentation by the PRA on progress to date in cleaning up the property in the hopes of finding a future developer and the current and future town costs for the cleanup.

Selectman Timothy Bowles acknowledged the lingering four-year controversy over whether the town should have taken ownership of the property from the state. He said he felt that way at first, but commended the PRA for its work and the current state administration for assisting the town.

Selectmen hesitated on the legal wording before approving the town meeting for Nov. 15 at 7:30 p.m. at Preston Veterans' Memorial School and the referendum for Nov. 27. First Selectman Robert Congdon said he would obtain a legal opinion from the town's law firm, Halloran & Sage, on the issue.

In the worst-case scenario, Chudwick said, the town meeting could be ruled invalid.

"Right now, we have a town meeting and a referendum scheduled," Congdon said. "The Supreme Court might have to decide it."

The town has been approved for a $4 million state low-cost loan and an additional $964,000 federal Economic Development Administration grant that require equal amounts in town matching funds. But the town can use the same money to match both the state loan and the federal grant. The $8 million question going to voters would cover both the state loan and the required $4 million town match.

The town faces a decision deadline of Dec. 1 on both the state loan and the federal grant.

The PRA has received more than $4 million in federal and state grants to date and has contributed $300,000 in local matching shares. With that money, the PRA over the past four years has demolished 22 of the 58 structures on the property, including old oil tanks and portions of the extensive underground network of tunnels that traverse the property.

The state loan is at 1.5 percent interest, but interest and principal payments will be deferred. For every 100 permanent jobs created by future development, $1 million of the state loan would be forgiven outright. The loan also requires that the town obtain at least $4 million in private investment over the next 10 years.

"I do not think that is a hard hurdle," Congdon said, answering finance board member Norman Gauthier's concern about the provision.

Finance board member Gail Whitney said she has been trying to figure out exactly how much the former hospital property is costing the town now and in the future, including the nearly $1 million past legal bill still owed, matching funds paid to date, the new $8 million in loans and the loss of state payment in lieu of taxes on the property.

Officials estimated the town's total cost could be as much as $14 million, including the new loans.

PRA Chairman Sean Nugent offered if the town shut down all work at the site after the current grants are exhausted, as owners of the property, Preston still would have to pay for insurance, security, maintenance and legal costs totaling $165,000 per year.

If the $8 million is approved, and the town bonds another $4 million for other capital projects, the combined debt would add about 2.3 mills to the town's tax rate by 2019-20 - the most expensive year of the 20-year life of the bond, Congdon said.

c.bessette@theday.com