BANGOR – Georgia-Pacific Corp. this week will ask the city of Old Town to approve its application for $27.5 million in industrial revenue bonds being sought under a federal program.

Under the federal industrial revenue bond program, a municipality and state must approve the application to show that the bonds will provide jobs or some other form of economic development gains to a town or region.

A company can seek industrial revenue bonds in an amount up to the cost of any capital improvement, solid waste control or pollution control project that is being undertaken at one of its locations.

In this case, $27.5 million is the equivalent of the biomass boiler project under way at Georgia-Pacific’s Old Town mill.

Industrial revenue bonds are tax-exempt, low-interest loans paid back by businesses over a long period of time, typically more than 20 years.

To receive the bonds, Georgia-Pacific needs the city of Old Town and the Finance Authority of Maine to approve its bond application. Then the state treasurer’s office will find investment groups or individuals to finance the industrial revenue bonds even though it’s a federal program, state Treasurer Dale McCormick said Friday.

By issuing its support, the city and FAME would not be liable for payment of the bonds if the corporation defaults on them, Old Town mill manager Rick Douglas said Friday. Instead, Georgia-Pacific’s corporate office would put up a guarantee – a payback agreement – on the bonds.

None of the Old Town mill’s equipment, particularly the boiler, will be used as collateral to secure the bonds, Douglas said.

The Old Town City Council will vote on whether to support the bond request at a 7 p.m. meeting Thursday at the Old Town Public Library. Then it is forwarded to FAME.

Only about a third of the $27.5 million in bond funds will be used at the Old Town mill site while the rest will be forwarded to Georgia-Pacific’s main office to reduce the corporation’s higher-interest debt load, Douglas said.

Out of the $27.5 million, up to $3 million will be used on the boiler project, he said, and upgrades to pulping operations and utilities could cost between $1 million and $3 million each.

The industrial revenue bond request is being watched by the state, which wants to make sure that Georgia-Pacific is meeting its contractual obligations regarding the West Old Town landfill-biomass project. So far, Gov. John Baldacci “has no problems” with the bond plan, said Alan Stearns, a senior policy analyst in the governor’s office.

Earlier this year, Georgia-Pacific sold the West Old Town Landfill to the state for $27 million, and the company is required to invest the money into the biomass boiler and not spend it on anything else, Stearns said.

Under the contract, the company also needed to guarantee that the biomass boiler-landfill arrangement with the state keeps or brings jobs to the Old Town mill, and that the boiler is not used as collateral for the industrial revenue bonds, Stearns said. About 450 people are employed at the Old Town mill.

He said the state has been given a verbal commitment that Georgia-Pacific would be putting a corporate guarantee on the bonds.

The federal government puts a limit on how much each state can issue in industrial revenue bonds, and Maine’s limit is $233 million this year, McCormick said. None of the bonds need voter approval, and generally the taxpayers are not liable for paying them back.

Georgia-Pacific’s request would not take funds away from any other project or request, she said.

Currently Georgia-Pacific has 42 outstanding industrial revenue bonds totaling $745 million nationwide, said corporate spokesman Greg Guest last week.