When the U.S. Navy abruptly announced in 1973 that it was pulling its Atlantic destroyer fleet out of Rhode Island and closing its sprawling air base and Seabee center here, state officials were hard-pressed to grasp the logic of the decision.

Gov. Joseph Garrahy, who was then lieutenant by his own account, was dumbfounded. What Garrahy heard was that Rhode Island, the smallest state in the nation, was going to absorb 50 per cent of the defense cuts ordered by President Nixon.

"I thought, 'This can't be right. That announcer has got to be wrong'," recalls Garrahy.

Raymond G. Neal, a Navy captain who recently had retired as chief of staff of the Quonset Point Air Base and who is now vice president of the Hospital Trust National Bank, Rhode Island's biggest bank, had just mailed a recommendation to bank officials that they open a new branch at the base because of "burgeoning" growth.

Then-Gov. Philip W. Noel and other top state officials had come to think of the destroyer fleet in Newport and the air base here, which was built in 1941, as permanent Rhode Island institutions.

After all, the Navy had just built scores of new duplex housing units at $40,000 apiece, had just completed a new commissary scheduled to open days after the shutdown announcement, and had let local build several new schools to accommodate dependents of the military.

Earlier, the Navy forced the state to spend an additional $8 million to change its plans for the proposed Newport Bridge so that it would be high enough to allow the passage of aircraft carriers of designs projected to the year 2000. The bridge, with a conspicuous bulge in the center, was completed in 1969.

If officials of the tiny State of Rhode Island (pop. 950,000) were hard-pressed to understand the officials of the big state of U.S. government bureaucracy (pop. 2.8million) in 1973, they are even more bewildered now.

For after devising an ambitious industrial plan for economic recovery that would offset the loss of 17,000 military personnel and their families and 6,000 civilian workers, the state still has not been allowed to acquire the surplus Navy land it needs to build new factories.

It took the Defense Department nearly four years to release $1 million needed to fund an environmental impact study of the industrial plan, and state economists estimate that the federal government has pumped $30 million a year into Rhode Island for unemployment insurance during that time.

The General Services Administration still has not made an official fair market appraisal of the 4,600 acres of land covering 10 sites, nor the 1,311 structures the Navy is giving up.

And environment groups have gone to court to bottle-neck the industrial development further, and in a decision bitterly received in most quarters of the statehouse, a New York federal judge last month set back plans for creation a large offshore oil-staging facility here by voiding leases for exploration of oil fields in the so-called Baltimore Canyon off the New Jersey and Delaware coasts, which could have provided thousands of jobs here.

"There's no way of describing how frustrating the last four years have been," Garrahy said in an interview in his state-house office.

"We've got the best industrial site in the whole Northeast. It's got a deepwater port, rail lines, an airfield and hundreds of good buildings for sale at surplus prices.* do anything with it."

Meanwhile, according to Garrahy and a dozen economists, bankers and state officials interviewed, Rhode Island continues to suffer from the debilitation effects of the base closures.

After the base closings, the statewide unemployment rate soared from about 6 per cent to 18.2 per cent, rising to more than 30 per cent in some towns.

Coupled with the economic impact of the Middle East oil embargo and the national recession, the loss of the Navy's $344 million annual payroll caused an immediate 6 per cent loss in the gross state product. Rhode Island, which trailed the average national per capita income by only $9 in 1972, fell $138 behind two years later. In one year, small-business income dropped by 25 per cent in the Newport area and by 15 per cent in the Quonset Point area.

Restaurants and bars on Sailor's Row in Newport folded almost immediately and, as the Navy withdraw its forces rapidly over the first year, hundreds of rental its forces rapidly over the first yearTNational chain retailers which had announced plans for new outlets suddenly withdrew, leaving shopping center developers with big parking lots and little else.

Teacher employment plummeted, and several towns found themselves with empty schools and bond issues they will be paying off for years.

"There has been nobody as little as us whohas ever been so devastated," said James O. Roberson, director of the State Department of Economic Development.

"Other states could absorb this. What does the Brooklyn Navy Yard mean to New York, or the Boston Navy Yard to Boston? But to us, my God, it's [the base closings] a big part of our economy," Roberson said.

With the movement of most of Rhode Island's textile industry to the South in the 1940s and 1950s, the state was left with a labour force of 430,000, nearly a quarter of them employed in the jewelry industry and a third in mostly light manufacturing. Gorham Silver and several large gold and silver-working firms are located here.

It was against this backdrop that the state launched an aggressive economic development program, committing more funds per capita on such promotion that any other state in the nation.

Among the projects designed to recoup the loss of the Navy were an $80 million nortage guarantee program for new factories and equipment, tax exempts industrial revenue bonds, tax credits and write-offs for research and development, elimination of property and sales taxes for factory equipment, a state-funded-job training school and other incentives.

The state also feverishly solicited new industry, building an elaborate, $200,000 "briefing room" at the Providence airport, with sliding screens and multimedia visual presentations designed to seduce visiting industrialists into moving to Rhode Island.

But the linchpin of the recovery scheme was the plan to convert the old Navy installations into nearly instant factory centers, which were envisioned as providing 10,000 new jobs at Quonset and 2,500 more in the Newport area.

Rhode Island has had some success, despite the tieup of its planned industrial land. General Dynamics Corp.'s Electric Boat Division opened a plant at Quonset that fabricates hull plates for the atomic-powered Trident submarine. The component parts are shipped to Groton, Conn. by barge.

Electric Boat, which invested $17 million at Quonset in the face of a restrictive, one-year lease, employs 5,000 workers - all hired from the unemployed work force. The division's capital investment was considered extraordinary because the state - restricted to terms of its tenuous and temporary control over Navy land - could offer nothing more than a one-year lease, cancelable in 30 days.

John B. Dana, Rhode Island Port Authority director in charge of the Quonset Point land, also has granted one-year factory leases - permissibale under the surplus land terms with the Navy - to 13 small factory owners. The businesses - regarded as the vanguard of the industrial development plans - include a sailmaker and a pipe fabricating plant.

Dana, however said that the Navy property - which includes 82 miles of paved roads, 94 miles of water lines, 40 miles of sanitary sewers and 25 miles of underground steam pipes - is overdeveloped for the use that the site is now getting.

Moreover, few industralists are willing to make a capital investment in Rhode Island on the basis of a one-yeat lease. But until the state takes title to the surplus Navy land, it is not permitted by law to offer more than a short-term lease.

Rhode Island officials recently took a bold step and tried to talk a consortium of two dozen oil companies into establishing an oil-rig services center on the surplus piers at Quonset Point.

Encouraged by the potential for oil discoveries in the Georges Bank Field in the Atlantic and in the Baltimore Canyon, the oil companies tentatively set up a staging center here. They brought in tons of equipment, including drilling pipe and facilities for making the chemical compound called "mud" that is used as a drilling lubricant.

Richard McCone, general manager of Superior Oilfield Service, Inc., one of the lessees who located at Quonset in anticipation of a major oil find at Georges Bank, said 3,500 to 5,000 oil workers could be employed at Quonset in two years if federal government site restrictions are lifted.

"All the supplies for the rigs offshore will have to come from this staging base. Drill pipes will be overhauled, mud will have to be supplied, and the entire nuts-and-bolts backup operation will have to be made out of here," McCone said.

The environmentalists, led by Rhode Island Conservation Law Foundation Way they are not trying to stand in the way of progress, but that they are committed to preserving the bay from industrial ruin.

Harold R. Ward, chairman of the foundation, said the $1 million promised by the Defense Department for an environmental impact study may mot be enough to chart the ecological impact on undeveloped lands surrounding the naval facilities.

But in the view of bankers such as Neal and Hospital Trust President Henry Woodbridge, the surplus Navy lands are essential to Rhode Island's economic recovery. They argue that the state is "losing face" with industrialists across the country because of the bureaucratic tieups, and that chances of emploiting the potential of the Navy land may never be realized.

"How long can you hold people's hands and say, 'Here's this great industrial site, but we can't give you anything more than a one-year lease, because we don't own it yet'?" asked Roberson.

"If General Motors wanted to move their whole Detroit operation here right now, we couldn't do a thing about it. That's the frustration of it," he added.