Original URL: http://www.theregister.co.uk/2007/03/22/north_carolina_paid-too-much_dell/

Dell deal made North Carolinians look like rubes

Google ready to fool state twice

By Ashlee Vance

Posted in Financial News, 22nd March 2007 19:08 GMT

You know what you look like to me, with your good bag and your cheap shoes? You look like a rube. A well scrubbed, hustling rube with a little taste. Good nutrition has given you some length of bone, but you're not more than one generation from poor white trash, are you Agent Starling? And that accent you've tried so desperately to shed? Pure West Virginia. What's your father, dear? Is he a coal miner? Does he stink of the lamp? You know how quickly the boys found you... all those tedious sticky fumblings in the back seats of cars...while you could only dream of getting out... getting anywhere... getting all the way to the FBI – Hannibal Lecter

North Carolina's generous handouts to companies looking to set up shop in the state have again found criticism: this time via a new dissection of the state's package that lured Dell to set up a PC manufacturing plant in Winston-Salem.

The North Carolina Budget and Tax Center this week released a 55-page study titled “Getting Our Money's Worth?”. The report dug into the state's $282m incentive package granted to Dell and found that lawmakers were likely far too optimistic about the computer maker's long-term impact on the local economy. From there, the researchers argued that the state should be more careful with its attempts to lure hi-tech businesses – a somber note that accompanies fresh fury around a similar deal with Google.

“Recent controversial deals with Google and other firms are heightening citizen and elected official interest in the rising incentive costs and the danger of bidding too much to attract new business,” the report stated.

The North Carolina/Dell issue gained national attention in 2005 after a watchdog group filed a lawsuit questioning the state's handout package. The critics voiced concerns over Dell's state approved tax breaks and other perks such as community colleges being required to hold courses on servicing Dell equipment. Smaller local PC sellers do not receive such benefits and were at a disadvantage against a giant such as Dell, the critics argued.

In addition, many North Carolinians saw too much fat on the Dell pork. Sure, the state wants to attract hi-tech businesses to replace lost farming and textile work, but at what cost?

According to the non-profit North Carolina Budget and Tax Center report, North Carolina legislators acted like rubes by swallowing Dell's promises whole. The state and counties, for example, chucked Dell $282m, while rival Virginia – the state competing for the Dell contract – had just $37m on the table for Dell. In addition, the models used by North Carolina legislators projected Dell generating more than 8,000 jobs by moving to the state, while Virginia models showed just over 4,000 jobs being created.

New Model Army

The North Carolina models turned uglier as the researchers dug deeper into the financials.

"When equally - or more - plausible assumptions were used in the same North Carolina Commerce Department model, the total projected 20-year impact on Gross State Product (GSP)fell from $24bn to between $5bn and $8bn, while the net change in state revenue dropped from positive $707m to between negative $63m and negative $72m," the report found.

Such figures prove troubling given North Carolina's latest handout to Google.

The ad broker plans to build a data center in the state and has been rewarded with a 100 per cent break on personal property taxes and a healthy 80 per cent cut on real estate taxes for the next three decades. Google also convinced legislators to push through a law letting it out of paying sales tax on electricity.

These deals have pushed the North Carolina Budget and Tax Center to call for the use of more realistic models when legislators try to calculate the long-term impact of incentive packages. The non-profit group has also urged lawmakers to trade their optimism for realism when aggressively courting businesses.

“The report’s main finding is that, despite employing an economic impact model designed to help the state develop optimal bids, North Carolina taxpayers are not adequately protected from the risk of over-bidding. Furthermore, in some cases, the state could be losing tax revenues on these deals, rather than gaining revenues as its fiscal model projects,” said the group.

You can find the full report in PDF here. ®