BANGOR – A new startup company that has developed a more effective kind of heat pump hopes to do more than just keep houses warm at temperatures down to 30 degrees below zero Fahrenheit.

It also could end up pumping several hundred jobs into the local economy, according to city and state officials.

Hallowell International LLC, headed by Bangor resident Duane Hallowell, plans to convert an unused city-owned building at 110 Hildreth St. into a manufacturing, assembly and distribution facility. The company would make heat pumps – devices that can extract heat from cool or cold air – and could employ more than 900 people within the next five years, according to state officials.

The Bangor City Council voted 7-1 Monday night to lend Hallowell International $200,000, and 8-0 to grant the company a lease on the Hildreth Street building through the end of April 2012.

The deal is not without controversy.

The owner of another company across the Penobscot River claims that his company helped develop – and invested heavily in – the technology Hallowell, a former employee, plans to use in his new business.

Nyle Special Products LLC of Brewer, where Hallowell used to work, claims to have developed a heat pump that works in low temperatures.

During Monday’s meeting, Don Lewis, co-founder and owner of Nyle Corp., said the city should not enter a deal with Hallowell.

“I just think it’s the wrong thing to do, and I think stabbing us in the back is wrong,” Lewis said.

Lewis said that $2 million and three years had been invested in his venture, $500,000 of which had come from the Brewer Economic Development Corp. in the form of equity.

“I can tell you that we’re not going to walk away from this project that easily,” he said, adding that he would sue Hallowell if he moved forward.

Among those on hand for Monday’s council meeting were Gov. John Baldacci and two of his top economic development officers.

“We’re excited about the potential of this,” Baldacci said of the jobs. “I think the most important thing is to keep the focus on job development,” he said.

The state’s role in the project would involve granting Pine Tree Zone status to the project.

“I think the council probably made the right decision,” council Chairman Frank Farrington, who cast the sole opposing vote in the matter, said after the meeting. He said he did so because he wanted the two companies to work out their differences and a unanimous vote would have sent a contrary message.

According to city documents, half of the loan amount would go toward Hallowell’s lease payments for the Hildreth Street facility, and half would be used for equipment, working capital or other uses approved by the city.

The company anticipates employing 31 people after one year of operation, 280 at the end of its second year and more than 400 after three years, city documents indicate. A lease drafted by the city indicates that Hallowell International is required to employ at least 100 people by May 1, 2008, and that it would pay the city no more than $230,000 total in rent through the end of the lease period.

Bill Osborne, regional business development specialist for the Maine Department of Economic and Community Development, said Monday that heat pumps are not just electric heaters. They extract and then compress heat either from air or from water, even if the air or water feel cold to the touch.

“You wouldn’t think there’s any [heat] at 30 below zero, but there is,” Osborne said. “It’s kind of like reverse air conditioning.”

Heat pumps are the fastest-growing mode of residential heating but are more popular in the South and in Quebec than they are in Maine, Osborne said. The cost efficiency of the technology is similar to that of oil and gas heaters, he said, but the pumps Hallowell proposes to manufacture are more effective than previous heat pump models.

“It’s capable of functioning at much lower temperatures,” Osborne said. “It’s kind of revolutionary.”

The Hildreth Street building is in Bangor’s state-approved Pine Tree Zone, Osborne said, which will make the company eligible for state tax benefits. He said the state and the company have agreed that Hallowell International will receive an 80 percent refund on all state income taxes the company’s employees pay over the next 10 years.

The more employees the company has, the larger the refund it will receive, Osborne said. The refunds will have no effect on the amount of income tax each employee pays, he said.

Should the company decide to build within the next 10 years, it will not have to pay sales tax on any building materials, according to Osborne. It also will not have to pay any state corporate taxes for its first five years of operation and will have to pay only 50 percent of its state corporate taxes for each of the next five years, he said.

Osborne said preparation work at the building could begin within days but that it likely would be several months before the new heat pumps go to market. The company has to renovate the building and make sure its production line is functioning effectively before the pumps will be available for sale, he said.