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By Gary D. Robertson, The AP
RALEIGH, N.C. – (Nasdaq: DELL) decision to dump a Forsyth County plant five years after it secured a potential $318 million incentives deal brought wistful responses from politicians who once lured the computer maker to North Carolina.
A desktop computer factory that Gov. Mike Easley’s administration argued could ultimately generate 8,000 jobs inside and outside the plant’s walls now will be closed by the end of January, in part because consumers want laptops instead.
"They could have succeeded. It’s a gamble," said Sen. David Hoyle, D-Gaston, the primary sponsor of the state incentives package targeting Dell that was approved hastily in a one-day legislative session in November 2004. "You take a chance, and you roll the dice."
Dell’s withdrawal from North Carolina, which was announced last Wednesday, has renewed debate over the state’s use of targeted tax incentives to attract specific out-of-state business and encourage companies already in the state to expand.
Democratic leaders at the Legislature and Gov. Beverly Perdue said the bad bet with Dell won’t dissuade them from making similar hefty offers if needed to recruit big companies in the future.
Surrounding states are competing for jobs using similar tax breaks and benefits, Perdue told reporters last week, noting that unemployment in North Carolina is near 11 percent. Many companies who received targeted incentives flourish, the governor said. Those who don’t must pay the state back.
"This may happen again. There may be another company that has outlived its capacity to compete in the 21st century in North Carolina," she said.
The state Supreme Court has upheld the use of taxpayer-financed incentives as meeting the constitutional requirement that they serve a "public purpose," once in 1996 over some local tax breaks and last year involving the 2004 Dell legislation.
Affirming its legality doesn’t mean the targeted incentives are the right thing to do, said Bob Orr, a former Supreme Court justice who wrote the dissenting opinion in the 1996 case, then sued unsuccessfully over Dell’s deal as an attorney.
"This ought to generate the kind of public debate and public thoughtfulness that we need about where we’re heading with all of this," said Orr, whose North Carolina Institute for Constitutional Law has other incentives lawsuits pending. "Dell is the big picture."
Orr and other incentives opponents argue that lowering the corporate income tax rate – at 6.9 percent the highest in the Southeast – improving education and offering broad job training is better than giving a single company or business sector a break.
Lawmakers are asked nearly every year to approve a large incentives package to seal a deal made by recruiters. The General Assembly approved one this year that could be worth $46 million over the next decade for Apple Inc. to build a Catawba County data center.
What made Dell different was the value of the package – calculated by some standards to be the largest that North Carolina had ever agreed to. Supporters at the time said the package was designed to help displaced textile and apparel workers.
House Speaker Joe Hackney said he doesn’t regret the Dell deal, because it probably generated additional tax revenues from the jobs it created. Plant employment reached 1,400 last year before layoffs began.
It also doesn’t appear Dell tapped far into the corporate income tax breaks and other benefits. The state Commerce Department says a preliminary examination found the company only received $8.5 million in benefits.
"The company didn’t get most of the incentives," said Hackney, D-Orange, who was House Democratic leader at the time of the Dell deal. While the bottom line is still being calculated, he added, "either we didn’t lose money or we had a net gain in revenues for the state."
The state’s portion of the Dell deal included "clawback" provisions added in recent years that give some lawmakers more comfort before voting yes, because incentives can be recovered if the company leaves town.
Rep. Paul Luebke, D-Durham, a critic of the hefty price tag on the Dell package, said he didn’t expect major changes in how targeted incentives are discussed at the Legislature because of the Dell closing.
"I think it should lead to more scrutiny, more legislative scrutiny," Luebke said. "But the deals are unavoidable because companies can play one state against another."
Brent Lane, director of the University of North Carolina Center for Competitive Economies, said he can understand why lawmakers and Easley recruited Dell in 2004.
But he said altering how targeted incentives are used – giving smaller amounts to a wide array of in-state companies that have the potential to create jobs in North Carolina – is more cost-effective and doesn’t have a huge downside if a firm shuts its doors.
"Dell was an exceptional opportunity, but that type or use of incentives should not be our main strategy," he said. "The failure of a Dell has severe ramifications."