Companies can exact public incentives to just stay put

Latham-based Plug Power Inc., which has attracted national attention as a developer of a home-based electricity source, may be exactly the kind of company other states would want to pluck from New York -- or at least get a piece of.

And though company officials won't confirm reports that economic developers from other parts of the country have approached them, state leaders are at least acting as if Plug Power could have a few suitors.

State Sen. Joseph L. Bruno, R-Brunswick, is in discussions with Power Plug, a fast-growing fuel cell developer, about incentives New York could offer to aid construction of a second manufacturing facility here, said Bruno spokesman Mark Hansen. A spokesman for Gov. George Pataki, Michael McKeon, said the state would do "whatever we can'' to keep Plug Power in the Capital Region.

Ultimately, that puts the company in a good position, whether it expands elsewhere or merely uses that threat as a way to bargain for more financial incentives from New York.

Interstate competition for business keeps economic developers in a continual battle -- and puts smart company executives in powerful negotiating positions for grants and tax cuts.

Those on both sides of the bargaining table know that the negotiations often are a game of brinkmanship, and that company threats to relocate or expand elsewhere are not always genuine.

One area chief executive, who asked not to be identified, conceded that he never seriously considered relocating his firm -- though he told state officials that he was. "But if you say that (in the newspaper), you compromise our future negotiating position,'' he said.

But those trying to keep companies and jobs in the area are hard-pressed to ignore threats of a company move. First, other states really are willing to lay out the red carpet -- and hefty financial offers -- for company executives who might consider a relocation. Second, politicians and other government employees can't afford to make a mistake that would cost them local jobs and public opinion.

Frank Mauro, director of the labor-backed Fiscal Policy Institute in Latham, said state and local officials can't risk unilaterally refusing to give in to company demands. After two years, for example, state and New York City officials still are negotiating on a huge deal to keep the New York Stock Exchange from moving to New Jersey, he said.

"I assume that the stock exchange tried to blackmail them,'' Mauro said. "But if the mayor and the governor didn't give them a deal and they really did move, the newspaper would skewer them.''

Mauro believes the federal government needs to step in to eliminate the use of state and local tax dollars to attract or retain businesses.

Meanwhile, as states' compete for companies, the challenge is to offer financial packages only to businesses that really are at risk of leaving, said Kevin O'Connor, president of the Center for Economic Growth, an Albany business development group that hooks up such firms with government officials and departments able to secure deals.

Developers need a strategy for deciding what companies are worth spending taxpayers' money on, O'Connor said. While some argue it's important to attract and retain employers with entry-level positions, O'Connor said he favors high-tech and other "high intellectual content'' businesses that depend on the region's highly educated work force.

When a company's jobs are worth paying for, threats of expansion elsewhere often are more real than outright relocations, O'Connor said. Businesses looking to build new manufacturing facilities, for example, must weigh some of the region's high costs -- property taxes and power -- against proximity to raw materials and availability of skilled workers.

In some cases, packages that include grants for work force training or capital improvements are needed to offset some of those high costs, O'Connor said.

Fast-growing pharmaceutical research firm Albany Molecular Research Inc., for example, secured $2 million from the state last year toward building a manufacturing facility in East Greenbush. Without the grant, it would have made more sense to build elsewhere, said Albany Molecular President Thomas D'Ambra.

Last week, Plug Power President Gary Mittleman said the company is looking for a site for a second manufacturing facility to produce fuel cells efficiently for a worldwide market. The site would need access to good transportation routes and a skilled work force, Mittleman said, but he declined to comment on where the firm might be looking.

Several areas regularly and aggressively recruit Capital Region companies, O'Connor said: Texas, North Carolina, Georgia and the Tennessee Valley Authority, a seven-state agency whose low electricity costs contrast sharply with New York's.

State economic developers would not discuss who they are fighting for Plug Power. They also would not comment on their current conversations with the local company or what specific offers might be on the table. The 3-year-old fuel cell developer already has received about $4 million in state incentives.

Eric Mangan, a spokesman for Empire State Development Corp., the state's economic development department, said the agency usually customizes packages based on a company's needs.

Phillip Phan, a management professor at Rensselaer Polytechnic Institute in Troy, said the state would do better to disclose more clearly what it will do to attract and keep promising companies in such a competitive environment.

"You don't want to show your entire hand, but at the same time you do want to send very credible messages about your commitment,'' he said.