Looks like the State and Dell's divorce is going to be messy

NEWS & COMMENTARY

Looks like the State and Dell's divorce is going to be messy
a lawyer's field day

December 08, 2009
Our regular readers will remember the Dell Deal. But for those who have just arrived in North Carolina we'll recap the essence.

In 2004 there was a special session of the legislature called to quickly pass a bill that would give a "large computer manufacturer" nearly $250 million in economic development incentives to build a big plant in Forsyth County. It turned out that the company was Dell Computers. Dell built the plant but just this past year announced that it was closing it. Now there is a dispute between the State and Dell about the nitty-gritty details of the deal.

The State says Dell must give the money back. Dell says no, that it only will give part of the money back. You can read more of the details by clicking here for a story that is running in the Winston Salem Journal.

To summarize and oversimplify what will obviously be a very complex issue by the time the lawyers get through with it, Dell says it has and will pay back the "grants" that had explicit "clawback" provisions but the tax discounts it received in prior years it is not required to pay back. The Department of Revenue says it received the tax discounts to create a specific number of jobs and it did not do so, at least on a continuing basis, so it owes the discounts back.

Commentary

We can hardly believe this imbroglio. With all the smart people who put together this deal, including 170 august legislators (or at least those who voted for it) we just have a hard time believing that they did not think about his beforehand. It is certainly not the first time the state has gotten in bed with a private company with such deals. Seems to us the language should have been very clear about what would happen if Dell closed the plant within a specified period of time. Now both Dell and the State will likely pay much of the money that is in dispute to lawyers from both sides. We find that amazing.

What this whole story with Dell illustrates is the foolishness of economic development incentives.

Even if the wording is, was, or were to be crystal clear then it still leaves the question of what the real value of what the State paid for was actually worth. Obviously when the Department of Commerce operatives argue that economic development incentives can be justified because they create so many jobs the length of time and the amount of salaries paid to those jobs must be factored in.

Had Dell told the state up front: "We'll create 900 jobs for three years" would the deal have been done? There was another deal with a tire manufacturer a few years ago where it cut its labor force and then a few years later got state money to "create" new jobs. It could have just as easily (and may have been) that the company got a boatload of money to create jobs and then cut some other jobs back.

"Creating jobs" is a woozy proposition. The Obama Stimulus Program has proven that. And now we have the idea of "create or save" jobs being used to justify what really is corporate welfare.

But what is not in dispute is that other businesses in Forsyth County that collectively created just as many jobs as did Dell during the same time period but did not get any incentives from the state. So how fair is that?

And no comment on economic development incentives would be complete without mention of the fact that once these deals are done you can more often than not find that the business people behind the deals have made extraordinary political campaign contributions to the key state players involved in funneling taxpayer money to the companies.

It seems to us that what we have here is legalized extortion. Give me money and I'll do you a favor. Don't give me the money and I'll go somewhere else. That's no different from the school yard bully that takes lunch money from the other kids. Let them get by with it and you are guaranteeing that it will happen again.

The issue here is not whether Dell should pay back what the state gave them. Certainly they should. The real issue ought to be how much more they should have to pay back than they received. That would help put a stop to some of this mess. And while we're at it, there ought to be a law against any politician taking a political contribution from anyone who received a state taxpayer funded handout.