Lessons from Dell’s N.C. Shutdown

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Dell has just announced the closure of its computer and peripheral factory in Winston-Salem, N.C. As I recounted in The Great American Jobs Scam (Scam #12), the plant was awarded state and local subsidies in 2004 that could have totaled about $300 million – more than twice the cost of the plant!

Now instead, more than 900 people will be dislocated and the subsidies will not create badly needed jobs in the state’s Triad region hard-hit by textile and furniture shutdowns.

The costly deal was rammed through in a textbook case of corporate-dominated process. After months of secret negotiations with the state commerce department during which the company essentially demanded zero taxes, state legislators were given one day to read and vote on the bill, up or down with no amendments.

Back in my previous life consulting against plant closings, I taught people that tax dodging is one more early warning sign, one more signal of corporate disinvestment. That is, if a factory owner is letting the equipment run down, removing hot new product lines, demanding wage concessions and chiseling on property taxes, it is saying loud and clear: “we do not see our future in your community.”

Looking at Dell (and recalling footloose companies like Sykes, Scam #4), I say the same principle applies to any newly arriving company that demands huge tax giveaways. If it refuses to pay its fair share of the growth-related costs it induces (for roads, schools, police, fire, sanitation, etc.) it is saying either: “We don’t care about the long-term quality of public services here,” and/or “Let everybody pay higher taxes to support the costs we create; that’s not our concern.”

Either way, the message is clear: the company does not want to invest in the fabric and the future of the community. And elected officials should see the early warning signs and run the other way.

5 Responses to “Lessons from Dell’s N.C. Shutdown”

  1. Tom Lacy Says:

    Saw it coming and going, you did! Alphan and Omega, sad to say, sad to see here in NC. Today’s blog is clear, concise, authoritative. May you find an audience among officials even now being tempted by such scams. It’s great to have you guys keeping track, elucidating just this sort of “respectable” usury. Thanks and keep up the great work. There’s much to do in restoring integrity to the marketplace, dignity to our workforce and prosperity to our middle class. Thanks again.
    Tom Lacy

  2. Christina Says:

    Same thing happened with the Sony plant in Pennsylvania. I sure hope one day elected and government officials change their way of thinking about economic development by curtailing the practice of luring big businesses into their community and start incentivizing the local small businesses that have fueled and will continue to fuel the economy.

  3. Howard Greenwich Says:

    Well said, Greg. This one lesson may be one of the largest set of blinders worn by public officials, simple as it is.

    We (Washington) lost Boeing in a bidding war with Chicago after decades of civic investment by the company, in everything from the arts, to schools to public facilities. This was merely a sign of things to come. Just the other day, Boeing’s most significant contribution to an educated workforce – free tuition for Boeing workers for any post-secondary eduction – has been canceled. Now, every other day we hear stories about Boeing moving production to other states if we don’t reduce taxes. And they want concessions from Boeing unions. I foresee ten years of concessions and tax reductions ultimately resulting in Boeing exporting half of all its jobs, if not more. And ceasing to see itself tied to any place, whether Washington or Illinois or South Carolina.

    Let the NC Dell plant be a warning to all.

  4. Kenneth Thomas Says:

    What about clawbacks?

    According to the Associated Press, most of the incentives were predicated on hitting job targets, so they were not yet paid out. The Mayor of Winston-Salem says that the city’s contract with Dell requires the company to repay all its up-front spending, about $15.5 million.

    But the company may not have to repay the money it received for reaching its early job targets, or for state training or infrastructure spending, according to the article, coming to about $18 million.

    So, the lessons I draw are two: first, the deal was mostly well-designed, with back-loaded subsidies largely obviating the need for clawbacks (see the Weber and Santacroce study on this website) and Winston-Salem writing clawbacks into its contract; second, the state overpaid for the investment in the first place, on the order of about $300,000 per job.

    Source: Associated Press State and Local Wire, “Millions Spent Luring Dell to NC Can’t be Recouped,” October 9, 2009.

  5. Sunk: Mercury Marine fiasco casts light on costs of state subsidy wars | OK Policy Blog Says:

    [...] deals intended to lure jobs and investment have instead ended up leading to a major plant shutdown (Dell in North Carolina) and a criminal probe (film tax credits in [...]

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