North Carolina leaders want to open a new front in the battle for jobs by shifting attention -- and money -- to saving existing ones. First they've got to resolve a fight over how to do it.

On Thursday, Gov. Mike Easley vetoed legislation approved by the General Assembly to push his own plan. The legislature in late July passed a bill that would give Goodyear Tire & Rubber Co. as much as $40 million to upgrade a plant in Fayetteville. Goodyear could have gotten the money even if it cut 750 jobs.

"I cannot, in good conscience, pay $40 million of taxpayers' money to a company to lay off 700 workers," Easley said at a news conference to announce his veto, his eighth since taking office in 2001. "We just can't do that as a state and act like we have any sense."

The governor touted his own proposal, which would give grants to large manufacturers that agree to upgrade and maintain all existing jobs. He said that the plan, which he wants the legislature to take up when it reconvenes in May, would require more accountability. Based on state data, Easley's proposal could benefit, at most, six North Carolina factories.

A looming battle

Easley's action sets up a clash with the General Assembly, which likely will come back for a special session early in September to consider overriding the veto. The House would do just that if it voted now, said Speaker Joe Hackney, an Orange County Democrat, who added that Easley's decision disappointed him.

"I don't believe Goodyear is intending to cut jobs. In fact, they may be adding jobs," Hackney told reporters Thursday. "We've had great difficulty working with them [Easley's administration] on this. ... We really wish he had worked with us earlier to help craft the bill instead of doing it this way."

To override the veto, three-fifths of members present would have to approve. The House acts first and, if it agrees to an override, the Senate gets the bill for consideration. The legislature is likely to reconvene Sept. 10 or 11, Hackney said.

Mark Basnight, a Manteo Democrat who leads the Senate, will wait to see what action the House takes, a spokesman said.

Rethinking the basics

That the governor and legislature are even considering incentives to maintain employers -- and employment -- marks a fundamental shift in the way the state approaches economic development. In the past, North Carolina officials, armed with lucrative tax breaks, grants and other perks, have courted companies with new jobs. Now, they're working on aid to get big manufacturers to upgrade and stay put, regardless of whether they add positions.

"One of the things we're going to have to do is take some elephants and turn them into gazelles and that means significant investment by a lot of these plants," Easley said. "We hope that it will result in more employees."

North Carolina has been forced into a painful transition as manufacturing, a driver of the economy for much of the last century, declined in the face of cheaper competition overseas. This decade alone, more than 200,000 factory jobs have disappeared.

State and local governments have offered well in excess of $500 million in tax breaks and other aid to attract companies such as Dell and Google to the hardest-hit regions. Some have complained that the state would have been better served offering similar concessions to manufacturers so that they could have retooled and let North Carolina avoid some of the pain altogether.

The state has helped some existing businesses. Companies such as Cree, a manufacturer in Durham, and Quintiles, a medical researcher in Durham, received incentives for expansion. But they won assistance for creating new jobs, not just keeping existing ones.

Goodyear concerns

Easley, a Democrat, said that he has been concerned about Goodyear, which, with 2,750 employees is one of Cumberland County's biggest employers. After he was elected in 2000, he visited the company's chief executive, discussed Goodyear's challenges and how the state could help.

Since the General Assembly approved the economic aid, Goodyear has announced plans to upgrade the Fayetteville facility and another in Alabama, which offered as much as $50 million in incentives. The company plans to make higher-end tires at the Fayetteville factory, which should provide more job security to workers.

"Goodyear's intention is to invest in the Fayetteville plant, but a delay in government support could put our commitment in jeopardy," Ed Markey, a company spokesman, wrote in a statement. "If such government support does not happen in a timely manner, Goodyear will consider options to redirect its investments."

Millions in grants

The legislation, championed by Sen. Tony Rand, a Fayetteville Democrat and one of the state's most powerful lawmakers, did not specifically name Goodyear. It required that a company invest at least $200 million and maintain at least 2,000 workers.

In exchange, the company could get a grant worth as much as $4 million a year for 10 years.

"We're trying to sustain these industries while the worldwide economies adjust," said Rand, who added that Goodyear pays between $55,000 and $60,000 a year and provides health insurance for 5,700 employees and their families in the area. "It's hugely important."

Easley said he wanted to make sure the state benefits from whatever incentives it offers. He worried that the legislature's bill amounted to a giveaway that didn't protect workers.

Under his plan, incentives would go to manufacturers in the poorest counties that employ at least 1,500 and pay wages at least 140 percent more than the average where they operate. Only six factories employ that many people in the 41 designated counties, according to research by the N.C. Employment Security Commission. The wage standard would likely mean that fewer than that would qualify for benefits..

Qualifying manufacturers -- Easley has already said that Goodyear rival Bridgestone Firestone in Wilson would be eligible -- that make significant new investments could receive a portion of new taxes they generate. Local governments also would have to chip in some assistance.

"The retention stuff sounds nice," said Alan H. Peters, a professor at the University of Iowa who has studied incentives. "People are much happier with the idea of retention. It's not that different. If you're a firm and you want money, you say: 'Give me money, or I'm going to leave.' "

(Researcher Brooke Cain and Charlotte Observer reporter Mark Johnson contributed.)

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