COVINGTON -- Erika and Shannon Daly see Alleghany County as the New Land. The Dalys moved out of prosperous but crowded Northern Virginia and found an unfinished log cabin on the perfect piece of land.

Instead of seeking the challenge of opening a wilderness, they are coping with the downward slide of a once-established economy.

With no firm prospects for work, the couple and their two youngsters early this year packed up their belongings and moved to Alleghany County, becoming the fourth owners of the partially built log cabin. The Dalys are not the first to come here with dreams; the test for them and for the county is whether such people can stick it out.

The prospect of a rural lifestyle drew the Dalys, both 36, to Alleghany County, a large portion of what's known as the Alleghany Highlands: Alleghany, Bath and Highland counties; the city of Covington and the towns of Clifton Forge and Iron Gate.

"It really was a leap of faith," said Erika Daly. "We were more than glad to get out of a megalopolis. We knew it [Alleghany County] wasn't booming as much as Northern Virginia, but you don't have the crime and all the big-city problems down here."

But then there's this: The place is an economic and political basket case.

Pushed to regionalism

The Dalys arrived at a time when some residents of Alleghany County and Covington are pondering moving because of conditions here. In fact, things got so bad that Virginia's Gov. Mark Warner called on leaders of the Alleghany Highlands' six local governments to work together to draw more industry and commercial business in an effort to enlarge the Alleghany Highlands' tax base and attract residents.

Heeding the governor's advice, governmental leaders adopted the Highlands Regional Enterprise Business Plan on Nov. 19. Before that, cooperation among the local powers had been rare.

Worse, there was the appearance of disarray: the Alleghany County Board of Supervisors abruptly fired the county administrator, Tammy Stephenson, and her top assistant, Rick Hall, in July. The firings came on the heels of citizen discontent at a time when there was little industrial development and the tax base was at a standstill. County employees were being fired or quitting their jobs, and many residents blamed Stephenson.

Critics said complaints from the Alleghany Highlands Concerned Citizens set the stage for the terminations. County supervisors, however, would only say they were acting in the best interest of the county. A multimillion-dollar lawsuit by Hall is pending.

Many of the worries of the citizens group are being addressed in the region's new business plan, prepared on the watch of an acting county administration, noted group member Julie Brackenridge. "I just hope they follow through," she said.

Among the needs identified by the group: a comprehensive 911 system, road repairs, water systems, a wastewater treatment plant, reassessments, a bridge replacement, completion of the Jackson River Scenic Trail, funding for a new YMCA and new industry. The group also feared that officials weren't working to attract new revenue sources for the Highlands.

Yet the firings and the governor's involvement might mark turning points in government cooperation.

Not only has the regional business plan been developed, but government and school officials in Alleghany County and Covington also have started talks on consolidating schools and governments.

In late January, the two school systems will undergo a $200,000 state evaluation on the feasibility of merging the divisions and/or consolidating the local governments. A new majority on the Alleghany County Board of Supervisors also overwhelmingly supports the once-heretical notion of merging school systems and other services. Some favor the eventual merger of the four governments in Alleghany County and Covington where the combined population is less than 25,000.

Interim Alleghany County Administrator Chip Snead and Bath County Administrator Claire Collins spearheaded a new business plan to invest $17 million locally over a four-year period. "We want to see all our middle-class families continue to live here," Collins said.

Among the goals is enticing the county's largest employer, MeadWestvaco, to remain and expand in the Alleghany Highlands.

The paper mill's plan to build a 600,000-square-foot distribution center in neighboring Rockbridge County has been derailed because Buena Vista residents don't want the center.

The paper mill originally sought an Alleghany County site, but the project pitted neighbors against one another, and not all of the property owners wanted to sell. Whether the newly elected county supervisors can put that venture back on track is uncertain.

Alleghany Highlands elected officials have pledged to put aside the petty and personal differences they say have plagued officialdom here for years. Among their priorities: a business incubator and economic recruiting incentives, such as concessions on infrastructure and taxes. They also plan to focus on developing tourism-related businesses.

"We have worked real hard for a few months and we are continuing to make progress," Alleghany County's Snead said Friday.

The hard work will result in 60 new jobs for Clifton Forge when Harrisburg, Pa.-based TransCore opens a call center next year. It has also netted a new director for the Alleghany Highlands Economic Development Corp.

Cheap real estate a draw

Shannon Daly couldn't find work in Alleghany County; he's teaching special education classes in Fairfield in Rockbridge County, about an hour's drive from their new home. Erika Daly teaches fifth grade at Alleghany County's Boiling Spring Elementary School.

One of Alleghany County's biggest economic challenges is a tax base that suffers when too many people who work within its environs own property outside its borders.

Bill Withrow, a certified public accountant in Covington, said the county is experiencing a steady decline in population. The U.S. Census Bureau showed a 3.6 percent population decline between 1990 and 2000. That population drop may be one of the reasons the county's unemployment rate is not higher than its November level of 3.9 percent. Withrow said that about 25 percent of the staff at Alleghany Regional Hospital and much of the staff at the MeadWestvaco paper plant live in Rockbridge, Bath and Botetourt counties and Greenbrier County, W.Va.

Still, real estate in the Alleghany Highlands is starting to attract bargain hunters. Buyers from Northern Virginia, Maryland and much farther away -- including New Jersey and Florida -- are coming in search of property for recreation, including hunting and farming, said Denny Tincher, a real estate agent at Greenway Real Estate & Auction Co.

Unfortunately, Tincher said, he has noticed a slight drop lately in sales of the moderately priced houses that are the staple of local workers -- those in the $50,000 to $80,000 range.

Another indicator that Alleghany County's working class isn't buying homes, Tincher said, is that a noticeable number of his clients are cash buyers, not people financing through mortgages.

Still, the real estate bargains can attract entrepreneurs who eventually parlay their savings into growing businesses. For example, Roy Wright, owner of Heirlooms of Clifton Forge, a gift and antique shop and restaurant, is a former hospital administrator. He's worked in Roanoke and at Alleghany Regional Hospital.

Wright came to Clifton Forge in 1974 to work at the hospital and already had a cabin on the Cowpasture River.

He said he did an informal market study, asking whether the Highlands was a good place to do business. He said all but one person said "no."

He joked that real estate in Clifton Forge is so inexpensive, it's like you can get it for free, because it can cost $300,000 for a fixer-upper in Lexington.

He bought two buildings with three apartments and two stores for about $98,000.

He said local merchants try to sell different wares so people can have a variety and to avoid competing with one another.

"Real estate is a huge factor in drawing people to Clifton Forge," Wright said.

"There's nothing wrong with the spending patterns of young retirees from the Washington, D.C., and Northern Virginia area. They'll have lots of money in their pockets," he said.

Ironically, an influx of affluent newcomers could make the Alleghany Highlands less attractive for folks such as the Dalys, who at first glance seem to fit the ideal demographic profile as models of new economic blood. They're young, well-educated and their income expectations are relatively low. Moreover, they arrived with an acceptance that they may have to be flexible regarding their careers in a dicey local economy.

But their commitment could wane in the wake of the very growth that Alleghany Highlands leaders crave. "Being teachers, we pretty much felt we could go anywhere we wanted to," Erika Daly said.

They still could.