Dell plant closing has local officials searching for answers

by Keith Barber

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 repay50 percent of the incentive funds itreceived.Winston-Salem City CouncilmanRobert Clark said he was “absolutelyshocked” by the news of Dell’s closing.Clark said the city did the right thingby structuring the deal as a long-termincentive to protect Winston-Salemresidents and taxpayers. Clark addedthat in the future, the city should lookto attract companies that are interestedin headquartering their operations in thearea, rather than just building a satellitemanufacturing facility.“One of the problems you have withsomeone like a Dell, their roots are veryshallow,” Clark said.Brent Lane, director of the UNCCenter for Competitive Economies,said economic incentives are not theculprit in the Dell closing, and the keyto success for state and local governmentsin the economic incentive gameis to be highly selective and forwardthinkingduring the selection process.Unfortunately, elected officials oftenfind themselves under enormous pressureto create new jobs immediately, andthe economic development process takesa very long time, Lane said.“There’s two great times to haveplanted a tree — one is 20 years ago;one is today,” Lane said. “We alwaysforestall making the long-term economicdevelopment decisions about ourinfrastructure and our systems becausewe’ve always got to deliver some resultsright now. I think the political imperativeright now is to deliver or at leastappear to deliver the promise of jobs.Intellectually, that’s a dishonest activity.”In a recent article entitled, “UsingEconomic Incentives: For Better or ForWorse,” Jonathan Q. Morgan, a professorat the UNC School of Government,writes that the state of North Carolinadidn’t get into the economic incentivesbusiness until the mid-1990s after it lostseveral highly-publicized industrial projectsto other states, including Mercedes-Benz to Alabama and BMW to SouthCarolina. Political considerationsprompted state officials “to take a moreassertive stance with economic developmentincentives,” Morgan writes.But the long-term economic benefitsof mega-deals like the one that broughtDell to Winston-Salem are rarely whatexperts predict, Morgan writes, addingthat Dell’s facility in Forsyth County hashad “a much smaller effect on the state’seconomy and a negative fiscal impact onstate revenues.”Morgan says the report’s findings illustratejust how imprecise economic andfiscal impact analysis can be with regardto incentives.“Politicians and community leaders areunder tremendous pressure to pull rabbitsout of hats,” Lane said. “That’s unfortunatebecause it can’t be done. We can’tsolve the economic problems of the countryand North Carolina that have accumulatedover the last 30 years in a politicaltimeframe, in a two-year period. Whenyou try to do that you end up throwing aquarter billion dollars at the next big businessprospect that comes along.”Lane said it would be unfair to characterizethe Dell situation to make theargument that economic incentives don’twork.“My regret about Dell and Winston-Salem, is not that Dell came Winston-Salem,” Lane said. “It’s that we didn’tbring Dell there15 years ago. I wouldlove to have seen us go after Dell in 1990,instead of 2000. That’s the kind of opportunitywe miss out on too often.”Lane said state and local officialsshould be asking themselves, “Who arethe Dells today and are we looking forthem?”Economic incentives can be used in anumber of ways, Lane said. They can beused to attract major established corporationslike Dell or to cultivate homegrownbusinesses that share the same entrepreneurialspirit that characterized Dell 15 to20 years ago.Bob Leak, president of Winston-SalemBusiness, Inc., said the hard lesson ofDell’s closing is no one can predict thefuture.“Change occurs and when that does,sometimes that change ends up with a closure,and I don’t think anybody could’veforeseen that five years ago when westarted this process,” Leak said.Winston-Salem Business, Inc. wasone of several local groups involved inbringing Dell to the area. Leak said thegood news is the Dell facility is modern,high-tech and flexible enough that anotherpotential tenant could make use of thespace.“It’s basically an open floor plan wherethey had essentially movable productionlines, so those could be removed, movedor changed and you have a nice, big openfloor plan facility to do something else inthere should there be a need,” Leak said.In the meantime, helping Dell employeesmake the transition back into the jobmarket has become the focus of local officials.Joines met with representatives froma number of Winston-Salem communityorganizations on Monday to look at waysto enhance the severance benefits for displacedDell employees.Gov. Beverly Perdue said in a formalstatement the state would work closelywith the Winston-Salem community “tomake sure that the displaced Dell workersand their families have the resources andsupport they need.”Lane said the 905 workers that will belaid off and the estimated 600 workers inancillary industries affected by the Dellplant closing should serve as a lesson thateconomic incentives are effective tools,but only when offered to companies withlong-term growth potential. Despite thehit to the local economy, the long-rangeeconomic forecast for the state remainsgood, Lane said.“The economic downturn has hurtNorth Carolina tremendously,” he said,“but on the other hand, it’s made NorthCarolina an even more attractive locationas far as looking for the efficiency of theeconomy we have to offer and the workforcewe have to offer.” !