More than 900 employees of Dell’s Winston- Salem desktop computer manufacturing plant will lose their jobs over the next several months following the computer maker’s announcement that it will shut down the facility in January 2010.
Dell issued a press release on its website on Oct. 7, stating the company would be closing the Forsyth County plant early next year “as part of an ongoing initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.”
The announcement proved to be a major bombshell for most Winston-Salem residents, and community leaders. Mayor Allen Joines said Kip G. Thompson, Dell’s vice president of Global Facilities, met with him the morning of Oct. 7, and told Joines the decision to close the plant had just been made as part of a larger strategy to improve overall efficiency of the company’s operations.
“They had been going through a number of alternatives to find a way to keep this plant open, but with the explosion of the laptop industry and the decline of the desktop, they just didn’t have a choice,” Joines said.
Dell spokesman David Frink said the decision to close the plant was based on two things — meeting consumers’ demands and remaining competitive in the industry.
“It’s a difficult decision to make, but one that we think that we’re better off transitioning the production of desktops across our broader global manufacturing network,” Frink said.
Six hundred employees will be released in mid-November and the balance of employees will be laid off in January 2010, Frink said. Full-time employees will be eligible for a severance package that includes two months of pay plus one week of additional pay for every year of service. Employees will also receive two months of outplacement assistance and a pro-rated annual bonus. Dell employees rehired in June will also be eligible for the company’s severance package, Frink said.
Dell received about $281 million in local and state economic incentives to bring its desktop manufacturing facility to Forsyth County in 2005. Joines said if there is a silver lining to Dell’s closing, it is a claw-back provision that the $15.58 million the city of Winston-Salem put forth in incentives will be fully repaid.
“The city is well protected and will be repaid every penny of its upfront costs and annual incentive payments,” Joines said. “In addition, the city will receive title to approximately 90 acres of land adjacent to the Dell building.”
The city approved a financial incentive package for Dell in 2005 to outlay $15.6 million in upfront costs and incentive payments. Of that amount, $8.5 million went toward land acquisition, site preparation and other upfront costs. Annual incentive payments to Dell were based on the company’s property tax payments.
The agreement required that Dell create 1,700 jobs within five years of the plant opening in September 2005, and that the company invest at least $100 million. The agreement clearly stipulates that failure to meet the terms would result in a return of all upfront expenditures, incentive payments and title to the land Dell purchased with city money, Joines said.
If the computer maker had met the benchmarks of creating 1,700 new jobs and kept its facility operating for six years, it would have only been required to repay
50 percent of the incentive funds it
received.
Winston-Salem City Councilman
Robert Clark said he was “absolutely
shocked” by the news of Dell’s closing.
Clark said the city did the right thing
by structuring the deal as a long-term
incentive to protect Winston-Salem
residents and taxpayers. Clark added
that in the future, the city should look
to attract companies that are interested
in headquartering their operations in the
area, rather than just building a satellite
manufacturing facility.
“One of the problems you have with
someone like a Dell, their roots are very
shallow,” Clark said.
Brent Lane, director of the UNC
Center for Competitive Economies,
said economic incentives are not the
culprit in the Dell closing, and the key
to success for state and local governments
in the economic incentive game
is to be highly selective and forwardthinking
during the selection process.
Unfortunately, elected officials often
find themselves under enormous pressure
to create new jobs immediately, and
the economic development process takes
a very long time, Lane said.
“There’s two great times to have
planted a tree — one is 20 years ago;
one is today,” Lane said. “We always
forestall making the long-term economic
development decisions about our
infrastructure and our systems because
we’ve always got to deliver some results
right now. I think the political imperative
right now is to deliver or at least
appear to deliver the promise of jobs.
Intellectually, that’s a dishonest activity.”
In a recent article entitled, “Using
Economic Incentives: For Better or For
Worse,” Jonathan Q. Morgan, a professor
at the UNC School of Government,
writes that the state of North Carolina
didn’t get into the economic incentives
business until the mid-1990s after it lost
several highly-publicized industrial projects
to other states, including Mercedes-
Benz to Alabama and BMW to South
Carolina. Political considerations
prompted state officials “to take a more
assertive stance with economic development
incentives,” Morgan writes.
But the long-term economic benefits
of mega-deals like the one that brought
Dell to Winston-Salem are rarely what
experts predict, Morgan writes, adding
that Dell’s facility in Forsyth County has
had “a much smaller effect on the state’s
economy and a negative fiscal impact on
state revenues.”
Morgan says the report’s findings illustrate
just how imprecise economic and
fiscal impact analysis can be with regard
to incentives.
“Politicians and community leaders are
under tremendous pressure to pull rabbits
out of hats,” Lane said. “That’s unfortunate
because it can’t be done. We can’t
solve the economic problems of the country
and North Carolina that have accumulated
over the last 30 years in a political
timeframe, in a two-year period. When
you try to do that you end up throwing a
quarter billion dollars at the next big business
prospect that comes along.”
Lane said it would be unfair to characterize
the Dell situation to make the
argument that economic incentives don’t
work.
“My regret about Dell and Winston-
Salem, is not that Dell came Winston-
Salem,” Lane said. “It’s that we didn’t
bring Dell there15 years ago. I would
love to have seen us go after Dell in 1990,
instead of 2000. That’s the kind of opportunity
we miss out on too often.”
Lane said state and local officials
should be asking themselves, “Who are
the Dells today and are we looking for
them?”
Economic incentives can be used in a
number of ways, Lane said. They can be
used to attract major established corporations
like Dell or to cultivate homegrown
businesses that share the same entrepreneurial
spirit that characterized Dell 15 to
20 years ago.
Bob Leak, president of Winston-Salem
Business, Inc., said the hard lesson of
Dell’s closing is no one can predict the
future.
“Change occurs and when that does,
sometimes that change ends up with a closure,
and I don’t think anybody could’ve
foreseen that five years ago when we
started this process,” Leak said.
Winston-Salem Business, Inc. was
one of several local groups involved in
bringing Dell to the area. Leak said the
good news is the Dell facility is modern,
high-tech and flexible enough that another
potential tenant could make use of the
space.
“It’s basically an open floor plan where
they had essentially movable production
lines, so those could be removed, moved
or changed and you have a nice, big open
floor plan facility to do something else in
there should there be a need,” Leak said.
In the meantime, helping Dell employees
make the transition back into the job
market has become the focus of local officials.
Joines met with representatives from
a number of Winston-Salem community
organizations on Monday to look at ways
to enhance the severance benefits for displaced
Dell employees.
Gov. Beverly Perdue said in a formal
statement the state would work closely
with the Winston-Salem community “to
make sure that the displaced Dell workers
and their families have the resources and
support they need.”
Lane said the 905 workers that will be
laid off and the estimated 600 workers in
ancillary industries affected by the Dell
plant closing should serve as a lesson that
economic incentives are effective tools,
but only when offered to companies with
long-term growth potential. Despite the
hit to the local economy, the long-range
economic forecast for the state remains
good, Lane said.
“The economic downturn has hurt
North Carolina tremendously,” he said,
“but on the other hand, it’s made North
Carolina an even more attractive location
as far as looking for the efficiency of the
economy we have to offer and the workforce
we have to offer.” !
