A NO-WIN WAR BETWEEN THE STATES

SELF-IMPOSED RAPE." THAT IS THE twisted phrase North Carolina attorney William Maready uses to describe the fevered frequency with which U.S. cities, counties and states are flinging open their coffers to attract big businesses and the jobs they bring. Maready, a trial lawyer whose challenge to the practice was turned back by the North Carolina supreme court last month, is hardly alone in attacking the use of taxpayer funds in the relocation sweepstakes. "We're spending billions of dollars to fund the moving van," says state senator Charles Horn of Ohio, which trucked more than $2.4 billion last year to lure or keep companies in industries ranging from banking to steel. "In the process, we're draining our budgets in education, research and technology--the very things our future depends on."

With many state budgets strained and many corporations in a downsizing mode, conflicts over job-development subsidies are white-hot. Critics denounce incentives as welfare for private enterprise that isn't paying off. "This is an issue whose time has come because too many giveaways are gnawing away at the tax base of our communities," says Jim Benn, executive director of the Federation for Industrial Retention and Renewal, a grass-roots research group in Chicago. "Teachers and firemen are being laid off, and homeowners and small businesses are getting stuck with even more of the burden."

While some incentives seem to pull in enough new jobs and taxes to recoup the lost revenues, other giveaways fail to do so. The pain is most acute when corporations pocket the money and then cut their work force or defect to a new location. New York City knows the feeling only too well. In a case that still rankles, it handed AT&T $20 million in tax relief in the 1980s, only to see the phone company later disconnect and move most of its corporate staff to New Jersey. Still, the city is frenetically defending its turf with handouts, especially to financial companies such as CS First Boston.

Even the winners of this war between the states may have lingering doubts about the price they have paid. Alabama pledged property-tax relief and other giveaways worth some $250 million--or more than $160,000 per job--to persuade Mercedes-Benz to locate in the town of Vance (pop. 400) a $520 million plant that will begin building sport-utility vehicles next year. A new crop of state leaders declare that their predecessors could have driven a harder bargain.

Experts say that how well incentives pay off depends on how shrewdly local politicians weigh the costs and benefits. "Incentives shouldn't be a one-size-fits-all deal," says Ken Kuhl, manager of Arthur Andersen's business-relocation service in Atlanta. "What's outrageous for one community may be perfectly reasonable for another." The trouble comes when politicians get caught up in battles with rival cities and states and frantically hurl money at corporations.