Despite winning more than $300 million in incentives and tax breaks from North Carolina and local governments four years ago, Dell Inc. has decided to shutter an assembly plant because of changing economic circumstances.
This fall Dell announced it would close the plant and lay off more than 900 employees. Company officials say they expect the shutdown to be completed in January.
In 2004 the North Carolina General Assembly was called into a special one-day session by then-Governor Mike Easley (D) to offer Dell $240 million of economic incentives to build a manufacturing facility. Coupled with what Forsyth County and the city of Winston-Salem added, the deal came to more than $300 million in tax breaks and benefits.
During the special one-day session in 2004, Governor Easley’s senior advisor, Dan Gerlach, argued legislators needed to act quickly to prevent other states from getting the facility. The lawmakers did, and the state put together a complex assortment of incentives, grants, and tax breaks.
With layoffs already ongoing and Dell’s prospects worsening in July of this year, Department of Commerce officials continued supporting the deal. Secretary Keith Crisco told reporters, “We need three to four years to judge it in total. [Dell is] the kind of company we need to be all over [recruiting] in this state.”
With Dell’s plant closure, some critics are pushing for more broad-based approaches to corporate recruitment. Representative Marilyn Avila (R-Wake) thinks targeted tax incentives miss the point.
“We should develop a statewide economic development plan, which is simply lowering corporate taxes,” she said.
Avila has long argued the state’s tax structure and regulations hinder job creation. She believes the use of incentives should be stopped.
Governor Bev Perdue (D), however, still equates such incentives with job creation.
“When 49 other states are using incentives, if you want to compete [you have to as well,” Perdue said in an interview with WRAL-TV in Raleigh.
Speaker of the House Joe Hackney (D-Orange) pointed out Dell did not use all the available money.
“While the bottom line is still being calculated, either we didn’t lose money or we had a net gain in revenues for the state,” he said.
Hackney’s comments illustrate another dimension of the state’s incentive policies. The complexity and myriad performance measures mean disputes between Dell and the state over money owed or needed to be repaid will likely end up in court at taxpayer expense.
Dell spokesman David Frink said recently in the Winston-Salem Journal, “Our belief and our understanding is that we met the performance thresholds required for those incentives during those years, and no, we are not obliged to repay those.”
North Carolina officials hold the opposite view. State Revenue Secretary Ken Lay says the state can require Dell to pay back the money because it no longer meets criteria used to receive it. He calls such a move a “look back.”
Half the Promised Jobs
Public officials promised taxpayers this deal would not lose money for the state. In spite of the much-publicized promise of more than 2000 jobs, the Dell facility never produced more than 1,100 jobs and still received millions of dollars from the state.
If it can be proven the state lost any money, public officials might well have serious problems on their hands from voters and legal challenges from groups like the NC Institute of Constitutional Law, which has challenged many of the state’s targeted tax incentives.
Former North Carolina Supreme Court Justice Robert Orr runs the NC Institute of Constitutional Law. In a letter to the Charlotte News-Observer newspaper, he wrote: “It’s very tempting to think that economic development can happen by granting a few companies exceptions to a state’s otherwise unattractive tax code. But it doesn’t work that way. States should be welcome mats to all business, not just those the politicians have picked as a winner.”
Chad Adams ([email protected]) is director of the NC Center for Local Innovation.