Montville - The governor's budget chief said Monday the state could decide within the next several weeks whether it will contribute millions to a new wastewater treatment system the town has proposed.

The town is seeking a state grant of up to $5 million to fund part of the new $6.5 million system proposed for Route 163 on the grounds of Rand-Whitney Containerboard. If the entire grant request comes through, the paper and packaging company is expected to cover the remaining $1.5 million and the daily operation and maintenance costs.

Benjamin Barnes, secretary of the state Office of Policy and Management and Gov. Dannel P. Malloy's budget chief, said the state is still reviewing the project, and it has yet to determine how much funding the town will receive.

"I think we understand what they're trying to do and the importance of the project," Barnes said. "What we're trying to do now is to make sure it's being done in a way that's consistent with our overall approach."

The town and Rand-Whitney signed an agreement in June 2011 that requires the town to help seek ways to improve the current wastewater system at the company's facility. It was determined a new $6.5 million anaerobic digestion system would better suit both sides in processing the plant's highly chemical wastewater.

The new system would be owned by the town, but it would be Rand-Whitney's responsibility to run and maintain it. The deal for the time being hinges upon how much money the state provides, Mayor Ronald K. McDaniel Jr. and an attorney for Rand-Whitney said Tuesday.

The project is expected to have lasting benefits for Rand-Whitney, whose chief executive officer is Robert Kraft, owner of the New England Patriots. Town officials who have worked on the project said it is vital for future development, and it would eliminate sizeable costs the town expects to incur in the next 17 years to improve the old plant.

Matt Auger, a town attorney, said an independent engineering firm determined that without the plant, the town would have to spend about $32 million by 2029 to upgrade its wastewater treatment operations to keep in line with state and federal regulations.

Auger said roughly $20 million of that estimate would be spent to acquire land and build three additional sequencing batch reactors at the town's current wastewater treatment plant on Pink Row. Those reactors handle biological oxygen demand, the main pollutant in Rand-Whitney's wastewater. The anaerobic digestion system would alleviate the need for these additions and would help the town drastically reduce what it pays for sludge treatment and removal. Instead of sludge, the new system would produce gas that would be burned by Rand-Whitney.

Auger said the new system could help the town make money by becoming a regional destination for other towns' sludge. He also pointed to another recent study that argued the town needs to upgrade its wastewater treatment system to support future development in the Route 32 corridor.

"This will fuel economic expansion for the town, and it's environmentally friendly," Auger said. "This is long-term thinking with an immediate impact."

Jim Cobery, general counsel and vice president for Rand-Whitney, also stressed the environmental benefits of the new system. He said it would free up a third of the capacity at the town's wastewater treatment plant. That would allow the plant to save on electricity and other costs.

The town and Rand-Whitney had a strained relationship for more than a decade. Among other issues, the two sides couldn't agree on what the manufacturer should pay to have its wastewater treated. The disagreements led to a lawsuit.

A federal judge eventually ordered the town to pay Rand-Whitney $11.7 million. The town took out a bond to cover the settlement.

In recent years, the two sides have come together to work on an agreement that, moving forward, would suit both. That two-part pact was reached last year. It calls for the Water Pollution Control Authority to charge Rand-Whitney the same rate as any other commercial user in town.

The agreement also charged the town with helping Rand-Whitney determine ways to upgrade its current wastewater treatment process. That led the Town Council to vote earlier this year to seek $5 million from the state Bonding Commission.

Wright-Pierce, an independent environmental engineering firm, prepared a study of the proposed wastewater system at the town's request. The study said the town annually would lose about $1.1 million in revenue from Rand-Whitney with the new system in place.

But, it argued, Rand-Whitney would be adding $362,000 in yearly operating costs, and it would be a benefit for both sides to avoid future lawsuits.

jeff.johnson@theday.com