States in No-Holds-Barred Battle to Attract New Jobs

IN the modern-day war between the states, the mission is to attract companies. The weapons are incentives packages packed with promises of tax abatements, work-force training, and improved infrastructure.

''It's an arms-race mentality,'' says Brian Dabson, president of the Corporation for Enterprise Development in Washington, D.C. ''The whole issue has been hotting up quite considerably over the last three, four years to what is now a situation somewhat out of control.''

In the high-stakes game of industrial recruitment, a state without an incentives plan, primed, loaded, and ready to go, can mean thousands of jobs may be lost to neighboring states.

In the fiercely competitive Southeast, that's the scenario that Alabama's industrial recruiters say has played out over the past four months, and they've been wringing their hands in frustration.

The lack of an incentives package has had ''a detrimental effect'' on companies considering coming to Alabama, says Mike McCain, executive director of the Gadsden Industrial Development Authority in Gadsden, Ala.

The problem started less than a year after the highly publicized Mercedes-Benz deal in 1993. Under Gov. Jim Folsom (D), the state attracted the German automaker with promises of more than $253 million in incentives, including cash and tax breaks. But in mid-1994, the Alabama Education Association, a teacher's union, complained that the incentives might illegally divert income tax revenue earmarked for education and threatened to sue the state. And new Republican Gov. Fob James criticized the package, saying it gave away too much, and that the state might not be able to live up to the promises it had made to other companies under the deal. He called for it to be rewritten.

What followed was several months of fighting among interested parties about what form a replacement package should take. Because the state had no working plan, recruiters say a number of prospective companies that would have set up shop in Alabama have gone elsewhere.

While that claim has not been documented, some companies have said publicly the state's uncertainty over the incentive program has played a role in their decisions. Trico Steel Company, a joint venture owned by LTV of America, British Steel, and Sumitomo of Japan, had its sights set on Alabama, but has said it would build in Mississippi, Kentucky, or Tennessee if Alabama doesn't come up with an attractive incentives program.

This kind of tactic is being used more often, as companies shop around to get the best deals, experts say. ''What businesses are starting to realize is that they can really pit one state against another,'' says Dayna Ashley-Oehm, policy specialist at the National Conference of State Legislatures. ''It's a threat, and it's a threat that makes politicians hop.''

Although incentives plans have been around at least since the 1970s, the recession of the early 1990s prompted the recent bidding frenzy. Last fall, Amarillo, Texas, sent an $8 million check to each of the 1,300 largest corporations in the United States. The deal: The money was theirs if they added at least 800 jobs in Amarillo.

''Governors and legislators and others have been under considerable pressure to try to create jobs and be seen to be doing something about the local economy,'' Mr. Dabson says. ''The easiest route is to try and attract someone to locate, and of course everyone got into the act.''

Some states have tried to end the incentives war by creating regional compacts that declare they won't fight each other for companies. But most attempts have been short-lived. Other people are calling for the federal government to prohibit states from competing with each other in this way. That scenario is unlikely to happen, Dabson says, because of the move in Congress to minimize the role of the US government.

A growing number of grass-roots groups, however, are objecting to incentives packages. For the most part, they represent the education community -- concerned about a lack of new tax revenues for schools -- and existing companies that worry they will have to pay additional taxes to cover the tax abatements given to newcomers.

Meanwhile, Alabama's governor, industry recruiters, and others have agreed on an incentives bill now in the Senate that would bring the state's incentive program out of ''limbo,'' says Ted vonCannon, head of the Economic Development Association of Alabama. The compromise bill, while not as strong as many recruiters would like, allows the state to be competitive again, Mr. vonCannon says.

''You need tools to compete, and one of the most important is an incentives package,'' he says. ''If we stand by and do nothing we will see jobs leaving the state and never coming here.''