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IBM prepared to break knuckles of low-income students

No intention of forgiving Faustian pact

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IBM takes no prisoners when collecting a debt, even when it's relatively small and the debtor is a low-income school district that is atoning for sins committed two decades earlier.

That much can be divined from a Contra Costa Times story reporting that earlier this month Mark Loughridge, IBM's chief financial officer, refused to forgive a $5m obligation stemming from a 1989 purchase of an unknown number of PCs by a school district that went belly up one year later. The superintendent of the West Contra Costa Unified School District, which incurred the debt and serves some of Northern California's poorest students, asked that the debt be expunged as as a good-will gesture.

According to a 1993 agreement that was supposed to settle a nasty spat between the parties, the first of four $1.25m installments comes due in 2008, with the remaining three payments due over the following three years. The $5m price tag is the equivalent of the salaries for 20 teachers at the district, which is home to about 31,000 students. If the obligation is forced to be paid on schedule, the district's debt payments will balloon from $2.5m now to about $3.75m.

The order was originally placed by the Richmond Unified School District in 1989, a year before the system went bankrupt. According to an associate superintendent at the time the purchase was made, the PCs were obsolete by the time they were delivered and many sat in warehouses and were possibly never even turned on. The invoices appear to be lost, so it's unknown how many or what kind of computers were ordered. With Richmond Unified defunct, West Contra Costa Unified rose out of its ashes, inheriting $42.5m in debt, according to this Wikipedia article (normal disclaimers apply).

Following heated shouting matches between the parties, IBM ultimately agreed to settle for $5.15m, rather than the $6.2m it said it was owed. An initial payment of $150,000 came due in 1993 and the remainder was to be paid starting 15 years later.

With West Contra Costa Unified, in Northern California, still finding its financial footing, superintendent Bruce Harter last month wrote a letter asking Loughridge to wipe the debt from IBM's books, noting the "obligation to IBM represents the equivalent of the salaries of 20 teachers which would further hamper our ability to provide high quality educational services."

IBM didn't get where it is by being swayed by such appeals, as someone in Loughridge's position would be the first to admit. He responded with a two-paragraph response urging the superintendent to "adhere to the agreed to generous payment schedule and include this obligation in your budget process". An IBM spokesman had not responded to a request for comment by the time this story was published.

Of course, a deal is a deal, and it's hard to feel sorry for customers whose eyes are bigger than their wallets. It's also worth noting that fiscal mismanagement at Richmond Unified is said to have been legendary. But IBM's refusal is sure to punish poor students more than reward its shareholders. Remember that the next time the spin monkeys tout Big Blue's philanthropy. ®

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