Case Study of Dell Inc.
Dell is as aggressive in seeking subsidies as it is in marketing personal computers. In a 2004 deal in North Carolina, Dell pulled off an unusual feat by getting much more in state and local subsidies – up to $267 million – than it was planning to invest in a new assembly plant.
Gov. Mike Easley called a special one-day session of the state legislature to vote on a state subsidy package worth $242 million. Legislators approved the plan, which created a new tax credit to enable the company to escape corporate income and franchise taxes for an estimated 15 years. Newspapers later won the release of the state’s negotiations records; in one meeting a state official recorded a Dell executive as saying that, with so many jobs being created, “Shouldn’t you be happy with no [tax] revenue?”
Most of the subsidy was in the form of a tax credit that Dell would receive for every computer or peripheral produced at the plant. The tax credits were in addition to infrastructure aid, training grants, and a grant designed to rebate three-fourths of the personal income taxes paid by Dell’s employees back to the company for the first 12 years. In announcing the North Carolina subsidies, state officials said Dell would locate in the three-county Piedmont Triad, but did not specify a site, saying the company would also seek local subsidies. That set off a bidding war among the three counties, and Dell got another $37.2 million in subsidies from Forsyth County and Winston-Salem. In June 2005, though, the North Carolina Institute for Constitutional Law filed a lawsuit challenging the tax breaks offered to Dell (it lost all the way up to the state supreme court). The plant opened in October 2005 with 350 workers and grew to about 1,100 before cutting back to about 900.
State and local officials were stunned in October 2009 when Dell announced plans to shut the plant, revealing later that the work would be outsourced to contract plants in Mexico and other countries. Officials pressed Dell to return the subsidies it had received. The company agreed to give back about $26 million of the local subsidies but balked at repaying state tax credits it had claimed. Dell reduced the plant’s workforce to about 400, but postponed closing the operation entirely until late 2010.
The North Carolina episode was not the first time Dell had played hardball in demanding subsidies. In 1992, seeking more space to accommodate its rapid employment growth, Dell made it clear to officials in Austin, Texas, where it was headquartered at the time, that it wanted extensive property tax abatements on any new facilities in the city. The company initially sought up to 10 years of abatements but scaled that back to three years after the city balked. The company negotiated with the city for six months and then decided it could do better elsewhere. Dell turned to the city of Round Rock, a northern suburb of Austin, which in 1993 agreed to provide a very generous package of incentives to the computer maker. The deal included 20 years of property tax abatements and $50 million in tax-exempt industrial revenue bond financing. Dell was also offered about 40 percent of sales tax revenues collected by Round Rock on Dell’s sales. The city became the new site of Dell’s headquarters.
In 1999 Dell announced plans to locate its first manufacturing facility outside Texas somewhere in the area of Nashville, Tennessee. The plan, which set off a scramble among local cities and counties, was expected to create thousands of jobs. The winner of the competition was Nashville itself, which offered Dell a package including:
- free land for the site worth $6.5 million
- 40 years of property tax abatements
- $20 million in infrastructure improvements at the site funded by the city and state
- one-time credits of $2,000 per employee against state franchise and excise taxes
- Metro Nashville tax credits of $500 per employee for 40 years
- industrial machinery state tax credits
- $4,000 per employee to pay for job training costs (refundable after workers were hired).
In return Dell agreed to build both a manufacturing plant and a technical-support center next to Nashville International Airport that was expected to employ 1,000 people by the end of the year and a total of 3,000 within five years. Some observers estimated the cost of the incentives over the life of the agreement would be more than $200 million. However, in February 2002, Dell announced that it was eliminating all manufacturing operations at the Nashville facility, which would become what the company called a logistics and merge center. Dell said it would move its Tennessee manufacturing operations to a plant it had built in Lebanon, 25 miles east of Nashville. An article in the Nashville Scene stated: “It doesn’t take a disenfranchised anti-business character to believe that Dell Computer’s reneging on the spirit of its incentive deal with the city amounts to bad corporate citizenship, to put it charitably.”
Greg LeRoy, The Great American Jobs Scam. San Francisco: Berrett-Koehler Publishers, 2005, pp.35-37.
Adam Bruns, “Dell Goes Carolina Blue,” Site Selection, May 2005.
J. Andrew Curliss, “Dell takes offer to bring computer plant, jobs to Triad; Bill tried to open deal-makers to public accountability,” Raleigh News & Observer, November 10, 2004.
Liz Murray Garrigan, “Accountability for Dell,” Nashville Scene, June 13-19, 2002.
Amy Joyner, “Dell Draws Perks from Other Cities: Including North Carolina’s Package, Dell has Landed More than $429 Million in Incentives Since 1999,” Greensboro News & Record, November 12, 2004.
Kirk Ladendorf and Mike Todd, “Dell Seeks Space for Expansion; Firm Makes Proposal for Tax Abatements,” Austin American-Statesman, November 5, 1992, p.B4.
Kirk Ladendorf, “Round Rock Incentives Lure Dell Expansion,” Austin American-Statesman, April 13, 1993, p.A1.
Richard Locker, “Nashville Wins Dell Computer with Hefty Incentives; Thousands of Jobs Promised,” Memphis Commercial Appeal, May 7, 1999.
Amy Martinez, “Deal called unfair even if workers gain,” (Raleigh) News & Observer, November 10, 2004.
Perri Morgan, “The Economic War Between the States: Robbing Families to Enrich Big Business,” North Carolina Political Review, February 2004.
“N.C. should cheer Dell, but we must weigh the wisdom of incentive packages trend,” Asheville Citizen-Times, November 10, 2004.
David Rice, “Dell picks Triad for new plant; company plans to hire 700 in first year,” Winston-Salem Journal, November 10, 2004.
Mitchell Schnurman and Andrea Ahles, “Dell Could Reap Record Tax Breaks,” Fort Worth Star Telegram, January 21, 2001, p.1.
David Rice, “Suit Challenges State, Local Aid for Dell Plant,” Winston-Salem Journal, June 24, 2005.
Sue Stock, “Computer Maker Dell to Close N.C. Plant, Lay Off 905 Workers,” Charlotte Observer, October 8, 2009.
Learn more about subsidy practices and controversial deals in this resource covering each of the 50 states and Washington, DC.