Local officials expressed confidence yesterday that their incentive-laden contract with Dell Inc. would be found constitutional in court.

But they are worried that, as word spreads about the lawsuit filed by the N.C. Institute for Constitutional Law, the ability of the community and state to recruit businesses could be hampered.

Officials on both sides of the lawsuit said that it could take 1 1/2 to 2 years before the lawsuit filed yesterday in Wake County could be resolved in the court system.

"We have been very meticulous with putting together this agreement,"said Allen Joines, the mayor of Winston-Salem. "We have followed the General Statutes to the letter, so we believe the agreement is constitutional.

"We're concerned that North Carolina could be put into an extremely disadvantageous place because of this lawsuit if there are concerns that the state's economic-incentive policies are being challenged."

Dell is building a $100 million plant at Alliance Science and Technology Park in southeastern Forsyth County. It plans to hire its first 200 workers by mid-August and ship computers from the plant by Sept. 18.

The lawsuit challenges the legislation that came from the General Assembly, which granted more than $242 million in tax credits and other economic subsidies to lure Dell to North Carolina. It also challenges the local resolutions adopted by the Winston-Salem City Council and the Forsyth County Board of Commissioners that provided an additional $37 million.

Joines and Gayle Anderson, the president of the Greater Winston-Salem Chamber of Commerce, said that the institute's lawsuit evokes memories of the 1996 lawsuit brought by local lawyer William Maready.

In the Maready case, the N.C. Supreme Court upheld cash grants from the city and county to new employers. The court found that the creation of jobs meets the state constitution's requirement that tax dollars must be spent for a public purpose.

"While the other (Maready) lawsuit was being heard, Winston-Salem was put into a disadvantageous place," Joines said. "Essentially, we were dead in the water in our recruitment efforts until the state Supreme Court reached its decision."

One of the plaintiffs in the suit, Bill Dowe, is a longtime promoter of small business in Winston-Salem. He said yesterday that such incentive deals are unfair to small businesses that pay their taxes.

Dowe questioned whether taxpayers will reap any benefit from the tax breaks offered to Dell.

"As a taxpayer, it comes ultimately out of us," he said. "At my age (76), I doubt I'll be alive to see the first penny come back to our city and county as a benefit."

Scott Millar, the president of the N.C. Economic Developers Association, said that the N.C. Supreme Court's ruling in the Maready case "confirmed the constitutionality of economic-development incentives."

"Incentives are a reflection of the aggressive times that we live in and North Carolina must also compete or risk being left behind," Millar said. "The act of filing this lawsuit does not in any way change the validity of incentives."

Alice Garland, a spokeswoman for the N.C. Department of Commerce, said she could not discuss pending litigation.

But, she said: "The use of smart, targeted incentives enables North Carolina to compete against other states and other countries for quality jobs and investments. Without the ability to use these tools, North Carolina's economy will wither."

Site selectors said that the lawsuit could dampen the enthusiasm for North Carolina from businesses considering moving to the state.

"The lawsuit may go nowhere in the long run," said Loren Kennedy, the principal of Kennedy Advisors LLC of Raleigh. "But the problem is that along the way, North Carolina could establish a reputation for having a difficult economic-development process."

Robert Orr, the executive director of the institute, said that there "is an incentive for the state and the communities to get this settled as quickly as possible."

"I have no doubt that there will be more lawyers on the other side than imaginable," Orr said. "This can go quickly, or it can go very, very slowly."

Sen. David Hoyle, a co-chairman of the Senate Finance Committee who often shepherds incentive bills through the Senate, said he worries that Orr's lawsuit could leave North Carolina as the one state that doesn't offer incentives.

"We cannot afford to be here by ourselves, unilaterally disarmed, with South Carolina and Virginia free to offer all sorts of incentives," said Hoyle, D-Gaston. "If he were to prevail ... it'll kill us."

John H. Boyd, the president of The Boyd Co. Inc., a site-selection company in Princeton, N.J., said that the lawsuit is much more about the future of incentives rather than derailing Dell's plant. The plant likely will be operating at full capacity by the time the issue is settled.

"What's at stake here is more what is the future of trophy economic-development projects in all states," Boyd said. "If these incentives are declared unconstitutional, that's the end of the hunt.

"But if that happens, the states that would be hurt the most are states like Ohio, New Jersey, Illinois, Pennsylvania, because their economic-development programs depend so heavily on incentives," he said.

"North Carolina would be an advantageous position because of a favorable business climate, lower labor costs, central location on the East Coast and lower cost of living," Boyd said.

• Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com

• Staff reporter David Rice contributed to this report.