Gov. Janet Napolitano prefers a new state law that would punish companies that hire undocumented workers over alternatives being pushed through initiatives.

The governor said Wednesday she recognizes the legislation, set to take effect Jan. 1, may have unintended consequences.

“There are lots of people on both sides of it who are predicting doom and gloom depending on different scenarios,’’ she said.

These range from companies fearing they will be put out of business for inadvertent errors in hiring and concerns employers will discriminate against anyone who looks Hispanic to questions of whether depriving Arizona companies of workers will undermine the state’s economy.

But Napolitano said one of the strong points of the legislation is it “allows for monitoring and close watchfulness so changes can be made to make it deal with what it’s supposed to deal with -- employers who intentionally and knowingly keep going into the illegal immigrant market to find cheap labor.’’

And that, she said, automatically makes the measure superior to either of the initiatives proposed for next year’s ballot.

A 1998 constitutional amendment limits the ability of legislators to alter anything approved by voters. That means even if an initiative creates significant problems, the only way of making major alterations -- or repealing it entirely -- is to take it back to the ballot.

“Having this done statutorily (by the Legislature) is the way to do it because then you can make changes,’’ she said.

Napolitano said this is particularly important for “a new law that’s never been tried by any state -- we’re the first one.’’

The legislation allows a judge to suspend a company’s state licenses or permits to do business for up to 10 days for knowingly hiring an undocumented worker. A second offense within three years results in revocation.

It also requires all companies to check information about new employees through the E-Verify database program run by the federal government.

One initiative being circulated for signatures proposes an even stricter standard, putting firms out of business for a single violation. A second, by contrast, gives more protections to some companies.

Napolitano’s comments come as a second business group has decided to support the employer sanctions law approved by the Legislature.

The Yavapai County Contractors Association said in a release the legislation would help “level the playing field,’’ ensuring that contractors who comply with the law and hire only people in this country legally do not face unfair competition from those who employ undocumented workers.

The move puts the group at odds with various companies and business groups -- including the Arizona Contractors Association -- who oppose the law and have filed suit to have it declared unconstitutional. Until now, only the East Valley Chambers of Commerce Alliance has supported the new law.

David Jones, president and chief executive of the state contractors’ group, said the law “threatens the ability of approximately 150,000 Arizona enterprises to operate in the state.’’

The 300-company Yavapai group said there could be “some short-term negative economic consequences’’ from the new law. “However, the board believes the long-term economic and social benefits far outweigh the short-term perspective.’’

In signing the measure in July, Napolitano noted there is no exception for “critical infrastructure.’’ She feared what would happen if a hospital or power company were shut down, even temporarily, because of hiring an undocumented worker.

She also wants a specific anti-discrimination clause as well as clarification of what happens to a firm with multiple locations if the violation is only at one site.

A House panel chaired by Speaker Jim Weiers is reviewing potential changes.