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Dell cuts North-Carolina plant despite $280m sweetener
Repayment in full expected
Dell has settled a long-running dispute over a $280m incentives package to open shop in North Carolina by shutting the facility and cutting 905 jobs to control costs.
Dell announced Wednesday it will close its disputed desktop computer manufacturing plant near Winston-Salem, North Carolina, by the end of January. The news arrived just two days after plant marked its fourth year in operation.
And, Michael's company must pay the state back in full the generous incentives it received, for failing to live up to the terms of the agreement it reached with North Carolina.
Back in 2004, Dell convinced the state to bend over backwards in order to set up its third US plant in North Carolina. Eager for high-tech jobs and compelled by the company's patriotic pitch, the state gave Dell an enormous golden handshake to the tune of around $280m in tax breaks, roads to the factory, and Dell repair classes in local colleges. In return, Dell agreed to invest $100m in the factory and create 1,500 jobs within five years.
The state's generous handout not only spurred serious criticism from local economic researchers, it also effected a lawsuit that claimed using tax revenue to fund grants for private companies is forbidden by the state constitution because tax money can only be used to serve a public purpose.
Today the economic recession and slumping PC sales weighed against Dell's need to please shareholders has resulted in deep cuts to vendor's operations.
Dell calls the North Carolina plant closure a "global simplification, providing customers best possible value," that will affect approximately 905 employees total. About 600 workers will be out of work next month, and the plant is expected to be fully ended January 2010.
The original contract with the state, however, stipulated that if Dell failed to meet its conditions, the company would have to pay back the upfront costs, incentive payments, and the land title Dell purchased with taxpayer money.
Mayor of Winston-Salem released a statement today assuring it would demand the refund.
"The city regrets the closing of this facility for the impact that it will have on the employees," mayor Allen Joines wrote. "However, the city is well-protected and will be repaid every penny of its upfront costs and annual incentive payments. In addition, the city will receive title to approximately 90 acres of land adjacent to the Dell building."
Joines said he was visited by Kip Thompson, vice president of Dell's North Carolina plant, who told him Dell will honor its commitment to repay expenses. The mayor went on to rather precisely account that the city had thus far provided $15,556,071 in upfront costs and incentives to Dell.
North Carolina Institute for Constitutional Law, the non-profit that spearheaded the Dell incentive lawsuit, also issued a statement saying the plant closure illustrates a "stark and painful example of the folly of the incentives game" played by state and local governments.
"No matter how big the incentive package, operational decisions by businesses headquartered out-of-state will be driven by corporate financial considerations and not by any sense of loyalty to the community being left behind," wrote NCICL director Robert Orr.
The closure of one of Dell's four American plants presents a sharp contrast to the company's recent $3.9bn acquisition of IT services firm, Perot Systems. During its financial year 2010 first quarter earnings chat, Dell said it will place an emphasis on data-center computing, service, and software rather than consumer hardware in order to ride out the economic tumult. That apparently leaves less room for the American labor Dell promised to protect if it received North Carolina tax breaks.
Our calls to Dell were not returned as of publication.
Thanks to Ed Stephens for the tip on the closure, a Reg reader who saw the plant originally go up. ®