Case Study of Sykes Enterprises Inc. (2005)
Call centers--offices where people make outbound calls trying to sell things, or where they receive inbound calls for customer service--became a major source of employment in the United States starting in the 1990s. By the early 2000s, they accounted for about three million jobs. During this build-up, call centers came to be regarded as an economic development panacea for small cities and rural areas--and in many cases the operators of these centers were lured with tax breaks and other subsidies. Eventually, however, state and local officials realized that call-center jobs could evaporate just as fast as they appeared.
The company that best exemplifies the rise and fall of the call-center economy is Tampa-based Sykes Enterprises Inc. The company has a history of systemically seeking subsidies from the communities in which it planned to open facilities. Indeed, a company vice president once said: "Every one of our locations is a result of some incentive plan...If a community is inviting Sykes to build a call center, they are expected to deed the land for two call centers to us, and give incentives of at least $2.5 million." Many of those communities that put out the financial welcome mat for Sykes ended up sorely disappointed. The following are examples of the company's checkered track record.
In Greeley, Colorado, Sykes announced a new center in 1994, with subsidies from state and local governments totaling about $915,000-- for six acres of land, site improvements, training grants, a no-interest loan, and local tax and fee waivers. Employment later peaked at 580, but in January 2002, Sykes announced it would be closed with the loss of 400 jobs.
In Klamath Falls, Oregon, Sykes announced a center in 1995. It received $800,000 in cash, 52 acres of land, $250,000 of road construction, and a three-year property-tax exemption. It was projected to generate 432 jobs, but peaked higher, at 650. By late 2003, however, employment was down to 80 workers, and those were laid off in early 2004.
Bismarck, North Dakota approved a package for Sykes in 1995 that included up to $2 million from the Vision Fund, 18 acres of city-owned property, utility breaks and other concessions, plus a five-year property tax exemption. In 1996, the state even gave Sykes a five-year exemption from state corporate income taxes. A second Bismarck center was announced in early 1997, subsidized by $2 million from the Vision Fund. In 1998, public opposition to a third city offer, for free land, improvements and another $2.5 million caused Sykes to drop plans for a third Bismarck call center. In January 2002, the company closed one of the centers, transferring jobs to the other and in May 2002 Sykes said 316 more jobs would be lost. By August 2003, layoffs reduced employment at the surviving Bismarck call center to about 150.
The farm town of Milton-Freewater, Oregon borrowed $2.2 million in 1998 to make a $2.7 million cash grant to Sykes for 400 projected jobs. The city also provided free land, utility services, and tax credits, plus $1 million in state funds for road improvements. Businesses just across the state line in Washington even chipped in $200,000 in private funds. The facility eventually employed almost 500 people, but in May 2004 Sykes closed it and terminated the 264 remaining jobs. (An unexpected contract caused the facility to reopen later in 2004 with a small crew.)
Manhattan, Kansas and the state of Kansas offered Sykes a subsidy package of about $6.2 million in 1998 for an estimated 432 jobs. From the city came a $2.6 million cash grant, free land, $500,000 for site improvements, and property tax reductions for five years. The state provided $550,000 from an Economic Opportunity fund, enterprise zone tax breaks worth nearly $1.8 million, and a project and training grant of $800,000. In June 2004, the remaining 256 workers lost their jobs when Sykes moved the work to Asia and Latin America. The Manhattan plant closed only six months after the enterprise zone tax breaks expired.
In 1996, business leaders in Hays, Kansas contributed $1 million of their own money to land a Sykes call center, on top of $2.35 million and 20 acres of free land provided by state and local government. As many as 650 new jobs were anticipated. The city of Hays even agreed to repay the state's $600,000 contribution, if the company failed to meet minimum job creation targets. However, neither private sector nor government support could keep the Hays center open, which employed 370 people in August 2003. After Sykes closed the center in 2004, the customer service company that took over its Hays facility had trouble recruiting potential workers made insecure by their experience with Sykes.
In Ada, Oklahoma, Sykes opened a center in 1999 with about 440 jobs after the city gave it $2.5 million in a cash grant plus land. But in January 2004 Sykes announced the Ada center's closure, with the loss of more than 400 jobs.
Scottsbluff, Nebraska gave Sykes $1 million from its federal Community Development Block Grant and $500,000 in local funds in 1999 to subsidize construction and infrastructure. After peaking at 393 jobs in late 1999, the Scottsbluff center was closed in 2002 with 240 layoffs.
Hazard, Kentucky helped Sykes in 1999 with a package of about $4 million, mostly state training money, for a potential 432 jobs. The state also spent $6 million on the Coalfields Business Park, where Sykes located. Employment peaked at 650 in 2001, but it was closed in late 2003, with the loss of 393 jobs.
Pikeville, Kentucky provided Sykes with almost $4 million from local funds in 1999, mostly for training, plus infrastructure and site preparation. The company also received a five-year property tax abatement. Sykes closed the facility in April 2004, with the loss of 324 jobs. Pikeville City Manager Donovan Blackburn was bewildered: "We put together a lucrative incentive package for Sykes. And then when the package ended, they just ran."
Eveleth, Minnesota in 2000 provided Sykes with a $3 million cash grant, plus $1 million worth of site preparation improvements and 22 acres of free land. Employment never exceeded 300 at the 432-seat facility, and Sykes announced it would close the facility in 2002, with 200 layoffs. Matt Sjoberg, at the time an official of Minnesota's Iron Range Resources, a regional development agency, said, "Sykes came in. They tried to make a go of this. They put the money in their back pocket, and they ran."
Sykes' 2000 subsidies from the city of Palatka and Putnam County Florida included $3 million from the County, a five-year property tax exemption, and 22 acres of free land. About 200 workers lost their jobs when Sykes closed the facility in the fall of 2004. Local attorney Timothy Keyser wasn't surprised: "That seems to be how that corporation makes its money. They dangle jobs to jurisdictions that pay them tax money."
The Sykes call center in Marianna, Florida was expected to employ over 560 people within three years of its 2000 opening. Jackson County and Marianna provided $2.1 million in subsidies, and the state another $2 million for land and infrastructure. In July 2004, Sykes announced the center would close, with 266 remaining workers laid off. In a rare show of generosity, Sykes donated $1 million worth of land and some equipment to Marianna in late 2004.
Many of the U.S. closures coincided with Sykes' growth offshore. In late 2004, the company said it had 10,000 workstations in low-cost countries such as Costa Rica and the Philippines (up 82 percent over the previous year) and 2,700 workstations in the U.S. (down 45 percent) and only half the domestic stations were staffed. Ultimately, it appears, domestic subsidies were less appealing than cheap labor abroad.
Greg LeRoy, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. San Francisco: Berrett-Koehler Publishers, 2005, pp.18-21.
Anne Nolan and Greg LeRoy, In Search of the Great Pumpkin: Economic Development Accountability in North Dakota. Washington, DC: Good Jobs First, 2002; available online at http://www.goodjobsfirst.org/pdf/pumpkin.pdf.
Joe Gardaz, "Right on the money; Sykes call centers command hefty price tags from cities," Bismarck Tribune, July 12, 1998.
Scott Barancik, "Fortunes might be turning for Sykes: After moving most of its call center jobs overseas and downsizing at home, Sykes Enterprises had some good news," St. Petersburg Times, November 3, 2004.
Learn more about subsidy practices and controversial deals in this resource covering each of the 50 states and Washington, DC.