That's the question local leaders will tackle in the coming year as they try to give the southern part of heaven a competitive edge in the tightening marketplace.

Economic incentives weren't on the agenda at last month's Orange County economic development briefing. But in the closing minutes at the Friday Center, with a map showing the packed room more than a dozen big projects under way around town, former Chapel Hill Mayor Rosemary Waldorf got up to ask a question.

How are we going to fill all the space?

"I was really surprised by how much office and retail space has been approved in this area," Waldorf said in an interview.

"The reality for Orange County is I don't think we can grow our local businesses enough and fast enough to fill those spaces."

Town officials have already begun discussing economic incentives, a topic sure to get the public's attention coming so soon after the council's decision to start publicly financed local elections.

"It's not something we're completely settled on," Town Council member Mark Kleinschmidt said Thursday.

He chairs the town's economic development committee, which recently developed a 6-point Economic Development Strategy Statement.

Incentives "to assist in small and local business development," come under Points 3 and 5. (See box, page A5)

Oh, Canada

If ever a company was made for Chapel Hill, it was Optimal Technologies.

The Calgary, Alberta, company helps power companies and large businesses improve energy efficiency, reducing costs and greenhouse emissions.

Chapel Hill wanted the firm, backed by $25 million financing from Goldman Sachs International, when it came looking for sites in North Carolina. It had 20 employees and was promising to create 325 new jobs, maybe more.

It chose Raleigh.

A big reason was incentives. If it delivers the jobs, Optimal Technologies will get a total of $650,000 from the capital city and the state. The Raleigh City Council approved its $325,000 grant by a 7-1 vote, The News & Observer reported last December. It was the second time the city had approved a cash grant.

Optimal Technologies considered many locations in North Carolina and elsewhere. A company spokeswoman said the incentives were a big factor.

"This first-of-its-kind incentive package was a huge driver," Lynette McInnes, vice president for marketing, said Thursday in an e-mail.

Other factors included the welcome the company received from Raleigh government, businesses and organizations and the fact that the company was going to be located in a downtown undergoing revitalization.

Chances are incentives supporters will invoke Optimal Technologies' name in the coming months' discussions.

"It was very disappointing," said Anita Badrock, who chaired the Chapel Hill-Carrboro Chamber of Commerce board when Optimal Technologies came looking and is now the chairwoman of the county's Economic Development Commission.

"Chapel Hill had a tremendous amount to offer that company in terms of work force and location," Badrock said.

Just no money.

Disadvantage

Not having economic incentives puts Chapel Hill and Orange County at a competitive disadvantage, said Waldorf, who is now one of the partners in the just approved Buckhorn Village project (See related story, page ).

"I think for a long time people thought Chapel Hill had such a great cache that we didn't have to work hard to bring in local commerce -- and that's just not true" anymore, Waldorf said.

The former mayor knows how hard it can be to attract businesses. She also works with the developers of Chapel Hill 40, the old VilCom campus off Weaver Dairy Road. Dawson Hall, a new office building there, has sat empty since the beginning of the year, though she says negotiations are in progress with possible tenants.

Waldorf, Badrock and Kleinschmidt all said incentives will have to be carefully considered.

Goals need to be measurable, to show local government is getting more back -- in property and sales tax revenue -- than it's putting in.

Dwight Bassett, the town's economic director, said officials have discussed two possibilities for retail businesses. In one, the town would help pay, on a square foot basis, a percentage of a business owner's lease. In the other, the town would match a merchant group's marketing program if the group could show, on an annual basis, the program was boosting sales.

"Our sales tax is flat," Bassett said. "Everyone knows that. We need to find ways to expand growth."

Not all the ways involve handing cash to merchants. Incentives could also include fast-tracking projects through the development review process.

Kleinschmidt says his committee has also eyed Carrboro's revolving loan fund, which helps start businesses that can't get conventional bank loans.

The Carrboro fund, started in 1986, helped start Weaver Street Market and Phydeaux, the pet store that recently moved to Elliott Road in Chapel Hill.

"We don't want to limit economic participation to only the the national chains," Kleinschmidt said. "In order to ensure we have a mix we've come to conclude that we need a variety of tools. In some cases it may be appropriate that we offer financial incentives.

"It really depends on how much those incentives might cost the town."

ECONOMIC DEVELOPMENT STRATEGY STATEMENT

The Town of Chapel Hill will innovatively and proactively diversify local economic opportunities by retaining and supporting existing jobs, and attracting new, desirable jobs in locations convenient to transit and housing. Our goal is to build a sustainable economy within the context of the Town's adopted Comprehensive Plan, which places importance on the built and natural environment, community character, transit orientation, social equity and quality of life.

GOAL STATEMENTS AND OBJECTIVES

1) Grow the non-residential tax base consistent with the principles of the Town's Comprehensive Plan.

a) Analyze the retail market to identify opportunities and capacity

b) Involve stakeholders in identifying locations and objectives for non-residential development

c) Continue to seek new opportunities for downtown redevelopment

2) Develop educational and employment opportunities to expand work-force skills and reduce commuting.

a) Work with community educational institutions to identify and develop training for job opportunities.

b) Establish a working group of residents, students and professors to identify strategies for retaining and attracting the creative class.

c) Work to increase the supply and diversity of new office space.

3) Focus on locally owned and/or oriented businesses.

a) Work with UNC, the Downtown Partnership and the Chamber of Commerce to identify and understand barriers for new and existing business development.

b) Develop incentives to assist in small and local business development.

c) Develop stronger pedestrian, bicycle and transit connections between centers of activity.

4) Maintain an open and collaborative relationship with the University.

a) Develop an Innovations Team with the University as a think tank for economic development

5) Welcome green and ecologically sound businesses and developments.

a) Work with our community partners to develop incentives for green development, jobs and business opportunities.

6) Maintain a community character that promotes economic vitality, environmental protection and social equity.

a) Continue our welcoming environment for a diverse work force

b) Continue and diversify our strong affordable and work force housing policies.