State paid high price for Dell incentives, report finds
BYLINE: RICHARD M. BARRON AND MARK BINKER
The state commerce department used inflated figures to predict Dell's economic impact when it asked the legislature for a $242 million tax incentive package in 2004, a study released Wednesday says.
In the end, the study's authors say, taxpayers are left with a corporate subsidy that will cost taxpayers more revenue than they'll collect from the computer assembly plant in Winston-Salem.
The state's other programs, especially its Job Development Incentive Grants program, should also be reviewed because they can lead the state to overpay for jobs sometimes, says the report.
The report was written by researchers from the Corporation for Enterprise Development and the N.C. Budget & Tax Center, two non profits focused on economic development. It was released by the N.C. Justice Center.
"On one level it's a value judgment by the politicians of the state and the citizens of the state of how much they want to pay for jobs," said Bill Schwecke, one of the study's authors. "But you're taking money from one part of the economy and giving it to another part."
State officials instrumental in landing the heavily recruited Dell took issue with Wednesday's report.
"We have a very well-grounded and responsible model," Commerce Secretary Jim Fain said of the method used to determine whether a project will be profitable to the state. "It is operated in a very consistent and responsible way."
According to the report, state leaders strayed from their usual method of determining a project's economic impact and chose a sales figure supplied by Dell.
Normally, the state would do its own analysis of a company's potential sales, according to the report.
Dell said annual sales from its Winston-Salem plant would be $2.3 billion a year.
The state then estimated that Dell's 20-year impact on tax revenue would be $707 million. But the report says in reality, the state may lose as much as $72 million on the deal.
"I don't believe that calculation can be correct," said Donald Hobart Jr., the Commerce Department's general counsel. He said the study assumes the maximum cost to the state even if the company fails to have the profits and expansion expected.
However, both Hobart and Fain said that most of Dell's incentive money is tied to its performance; if its profits and hiring drop, so would what it gets from the state.
The report used Virginia's losing bid for Dell as comparison. Virginia offered Dell $37 million, not a lot more than Forsyth County alone paid for its portion of the total incentive package.
Virginia's estimate showed that Dell would create a total of 4,113 jobs, while North Carolina estimated more than 8,000 jobs.
One local official has no regrets.
Bob Leak Jr., president of Winston-Salem Business Inc., helped recruit the company, but was not a part of the state's negotiations, he said Wednesday. But he thinks the process was a sound one.
"Were they more aggressive than they needed to be? You never know," he said. "I feel confident that we didn't overpay, at least locally."
Dell, which opened in 2005, employs more than 1,300 people in Winston-Salem.
The report says, however, that state officials ultimately overbid for those jobs and the related jobs that may come to the area.
"The more aggressive North Carolina numbers, however, did have an impact on the political process of selling the incentive package to North Carolina residents and politicians," the report said.
Sen. Kay Hagan, a Greensboro Democrat, said she had not read the study but noted a legislative committee was already studying what revisions may be needed to state economic incentives law.
"I personally think we're much better off having Dell than we would be without Dell," Hagan said.
Contact Richard M. Barron at 373-7371 or dbarron @news-record.com
Contact Mark Binker at (919) 832-5549 or mbinker@news-record.com
nBut officials involved in the deal say it was worth the cost to bring jobs to the Triad.