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Some believe incentives wasted on big business
11-30-04
By Dan Zehr, Cox News Service
News
& Record
AUSTIN, Texas — The price local governments will pay to attract a
major manufacturing facility keeps soaring, but few companies
harvest deals as rich as the one Dell recently landed.
Earlier this month, Dell agreed to build a plant in the Piedmont
Triad after North Carolina ponied up its largest package of tax
incentives ever, worth $242 million over 15 years. And that doesn’t
include local incentives that are still being hammered out.
It’s one of many economic development projects that amplify the
debate about how much cities and states should pay to attract jobs.
With its latest deal, Dell has “set the standard in
non-automotive, corporate relocation projects,” said John Boyd, a
corporate site consultant in Princeton, N.J., who wasn’t involved in
the North Carolina project. “That will be referenced in the next
trophy project that comes down the pike.”
In 2000, Nissan Motor Co. got the first piece of what’s now a
$363 million package from Mississippi.
Earlier this year, Texas Instruments got grants and tax breaks
estimated to be in the $280 million range to build a
$3 billion semiconductor factory in Richardson.
In early 2003, Toyota got a package valued at about
$161 million for a plant in San Antonio.
The question economic developers and economists in North Carolina
and across the country face is this: Could that money be better
spent?
“The ultimate priority related to economic development should be
education reform,” said William Schweke, vice president of the
Corporation for Enterprise Development, an economic development
think tank with offices in Raleigh. “States need a much more
seamless system of lifelong learning.”
About 15 years ago, Schweke said, North Carolina took pride in
the fact that it didn’t have any corporate incentives on its books.
Then manufacturing started to decline, and the state added some
incentives — then added a few more, and a few more, and now a custom
package for Dell.
Critics now ask whether the state is giving away too much in a
package that works out to $10,756 annually in incentives for each
$28,000-a-year job.
The state estimates it will get back $4 for every $1 it’s
investing in Dell, said Dan Gerlach, a senior economic adviser to
Gov. Mike Easley.
Some people in the local entrepreneurial community say the state
could get more bang for its buck if it targeted incentives towards
small businesses that create over 80 percent of the jobs in North
Carolina.
“Suppose we gave $50,000 to 5,100 small businesses,” said Tom
May, the director of the Nussbaum Center for Entrepreneurship in
Greensboro. The amount reflects an estimated $255 million that Dell
could receive in state and local incentives.
“Let’s say that half of those fail, and the other half create 20
jobs each — that’s 51,000 jobs. I think that speaks for itself.”
Lisa Blakley, CEO of the Piedmont Triad Entrepreneurial
Initiative, said states like Massachusetts and California fund
entrepreneurs.
She would like the state to find a way to provide high growth
companies with seed capital.
Blakley and a group of investors and other entrepreneurial groups
recently met with Bob McMahon, executive director of the N.C. Board
of Science and Technology, to talk about the issue.
But even the people who support tax incentives wonder if states
discount their native strengths and offer too much. North Carolina
has a deep manufacturing labor pool and appealing geography, close
to its East Coast customers. Those were two of Dell’s priorities for
a new plant.
“We had more attractive incentive proposals that came our way,”
company spokeswoman Cathie Hargett said, declining to name the other
sites. “But the incentives in and of themselves do not make the
decision.”
Without the incentives, she said, Dell would have looked
elsewhere.
That’s the rub: Only the company can know for sure how big a
factor incentives are.
Few communities or their elected officials are willing to call a
company’s bluff when jobs are at stake. That’s especially the case
in the Piedmont Triad. The area lost more than 40,000 manufacturing
jobs in the past decade.
State officials also stress that they gave the company only a
small amount of the money up front in grants for infrastructure and
job training.
Dell has turned the art of negotiating economic development into
a science by taking the same approach to incentives that it does to
the rest of its business, steadily ratcheting up the stakes.
More than a decade ago, Round Rock, Texas, offered Dell a 60-year
package of tax refunds that eventually drew the company’s
headquarters out of Austin.
Because the deal is based largely on Dell’s rapidly increasing
sales, it’s hard to estimate the lifetime value of the package. But
in its most recent fiscal year, the city rebated $7.6 million to
Dell, almost all of which was a refund on the company’s $24 million
sales tax bill.
Six years after its deal with Round Rock, Dell wrangled a
40-year, $166 million package of grants and tax breaks from
Nashville, Tenn.
As the only computer maker that still builds some of its products
in the United States, where labor tends to be more expensive, Dell
says it has to be tough when negotiating incentives for new
facilities.
Yet company officials also realize there’s a limit: If they ask
for too much, Dell’s relationship with the community simply won’t be
sustainable.
“Wherever we employ, we have to be a community citizen,” Joe
Marengi, general manager of Dell’s operations in the Americas, said
last month. “A loss for a community is not good for anyone.”
Everyone’s out to find the same balance, Gerlach said. He
believes North Carolina and Dell reached it with this deal.
That both the state and Dell are happy is important because
perception is key to the economic incentive game, said Boyd, the
site consultant.
Dell’s responsibility to its shareholders requires that it strike
the best possible deal, even though it has $12.4 billion in cash on
hand, enough to build more than 100 plants like the $115 million
facility in North Carolina.
“Corporations generally want it all,” Boyd said. “Dell’s
sophisticated enough to balance the public relations element with
economic realities. Not all companies are.”
Staff writer Marta Hummel contributed to this report.
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