NASHVILLE — Gov. Phil Bredesen said Tuesday he believes a new business incentive passed this year by the Tennessee General Assembly will help the state attract major new businesses.

The change allows state recruiters to grant enhanced job-tax credits to suppliers locating near and providing parts solely to a manufacturer making a $1 billion or greater investment in Tennessee.

Suppliers for Volkswagen AG, which is considering Chattanooga, among other sites, for an auto assembly plant, could be eligible provided the German manufacturer’s investment is $1 billion or greater. News accounts differ on the size of Volkswagen’s planned investment.

A German auto magazine, Auto, Motor und Sport, reported that the size of the investment would be 500 million euros, worth about $787 million — less than the trigger point for the new incentive. But other news accounts have cited a $1 billion or greater investment by Volkswagen.

But beyond the upfront investment in an auto plant, the suppliers that pop up around it may be more important, Gov. Bredesen said.

“I do think that (new incentive) can prove to be very helpful, because for every job that’s in one of these assembly plants, I mean, there are typically four or five or six others in suppliers that are created,” he said.

The governor said that “while these assembly plants are very heavily competed for — and we want to have them — we probably will get more actual employment out of the suppliers who locate here because of that.”

Meanwhile, Gov. Bredesen is keeping his fingers crossed that Volkswagen will choose the Enterprise South Industrial Park in Hamilton County for the new plant.

“I mean, obviously we have competed for these plants as they have come along,” Gov. Bredesen said. “We certainly have competed for a Volkswagen plant. I’m hopeful of the outcome. I think the Chattanooga community has done a wonderful job.”

Auto, Motor und Sport, citing unnamed sources, is reporting that Volkswagen management will decide Tuesday where it will locate its new U.S. auto assembly plant. The magazine said production at the new plant would start in 2010 with an annual capacity of 300,000 cars reached by 2018.

Chattanooga’s Enterprise South reportedly is vying with a site near Huntsville, Ala., in Limestone County for the plant, which some say could employ 2,000. Volkswagen management previously has identified sites in Tennessee, Alabama and Michigan as being in contention.

Tennessee now offers a tiered series of “super” job-tax credits of $5,000 per year per job over a period of years for companies making investments of $250 million, $500 million and $1 billion. The companies also must generate a requisite number of new jobs whose pay meets state muster. The greater the investment, the longer the tax credit on business franchise taxes will last.

State Revenue Commissioner Reagan Farr said the new incentive allows a company investing $1 billion to designate “integrated” suppliers locating near the firm’s new plant to qualify for the same credit given to companies investing $250 million. Such suppliers would be eligible for an annual $5,000 per job tax credit for six years.

The company investing $1 billion and creating 1,000 jobs already gets a $5,000 per job tax credit annually for 20 years.

“It allows them (suppliers) to piggyback a little on that investment so they will qualify for the $250 million threshold,” Mr. Farr said of the suppliers. “They don’t have to invest the $250 million and create the 250 jobs. They can invest $10 million and create 50 jobs.”

But the supplier must be in the area of the “taxpayer that made the billion investment,” Commissioner Farr said. He also noted the company making the $1 billion investment would have to certify that the supplier was manufacturing strictly for the company.

Although Gov. Bredesen said he doesn’t want to “overpay” for incentives, he noted that “if we’re successful in getting another major auto manufacturer in the state, I also want to make sure we’re then reaching out. The next step of that is to get lots of suppliers to supply, to locate in the state as well.”

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