Sprague — The town’s largest taxpayer and employer, Fusion Paperboard, announced Wednesday that it plans to close its Sprague mill in September and lay off about 140 employees, said state Sen. Cathy Osten, who is the town’s first selectwoman.

The news comes one year after Gov. Dannel P. Malloy and Osten welcomed news that the state Department of Economic and Community Development had approved a 10-year, 3 percent loan of

$3 million to help Fusion expand operations, retain 147 jobs and create 20 new jobs with a $6 million upgrade project.

Osten said she received word Wednesday morning following the announcement to employees at the plant. The plant, formerly known as Cascades Boxboard Group, contributed about $250,000 to the town’s tax rolls last year, she said.

“I think this was a complete surprise to everyone,” said Osten, a Democrat. “From a first selectman’s perspective, we did a lot of work to ensure they were treated with respect and did what we could to make them successful.”

Osten said the town had forgiven a $50,000 building permitting fee and worked to secure a three-year agreement with Norwich Public Utilities to halt a planned sewer rate increase.

Osten said she has already contacted Malloy’s office to look into terms of the $3 million loan but said she has had no indications the company plans to walk away from repayment of the loan. She said she plans to meet with company officials.

“I’m certainly concerned about the $3 million, but right now I’m most concerned about the 140 families facing unemployment,” Osten said.

After 29 years working at the plant on Inland Road, Rich Harrelle, 54, said he was caught off guard when he was called in with other employees Wednesday morning and told about the planned closing. The plant is to close Sept. 22, he said.

Harrelle, who is a turbine engineer at the plant and president of the local 1840 of the United Steelworkers Union, said he is calling on all available legislators to help save the plant and the livelihoods of his fellow employees.

“We’re going to do what we can do to hopefully keep the place running. We have two months to come up with some kind of plan to save about 140 jobs,” Harrelle said. “There are so many jobs leaving Connecticut. It’s just a shame.”

Harrelle said company officials told workers “market conditions” had led to the closing. A company spokesman was not available to comment on Wednesday.

In a press statement announcing the planned mill improvements last year, Fusion Paperboard Chief Operating Officer Ghislain Levesque said the multimillion-dollar project to upgrade equipment at the plant “is the most important investment in a single project for the Sprague mill in the last decade.” Fusion intended to overhaul and repair its paper machine, which produces recycled paper products, and a turbine that generates the power for the paper machine.

The company produces high-performance coated, recycled boxboard, folding cartons and packaging for North American food and consumer product manufacturers, according to its website. It also produces 100 percent recycled, food-grade paperboard at its Sprague mill.

OpenGate Capital purchased Fusion in 2011 when it was known as Cascades. There was a similar announcement that same year when Caraustar Industries Inc., located in an adjacent mill to Fusion, announced it was closing and laying off about 80 employees.

g.smith@theday.com