When Good Deals Go Bad for Economic Development Planners

Michael Giberson

State and local economic development agencies and assorted politicians like to trumpet their successes in using tax breaks and other incentives to induce companies to locate in their areas. Rarely does anyone report how these deals turn out in the months and years after that initial photo op. From BusinessWeek‘s Management IQ blog, a story on the aftermath of one deal: “Dell’s Plant Closure Raises Anger Over Incentives.”

Do government incentives aimed at luring businesses to a state or city work?

There’s already a body of evidence that they often do not. And news out of North Carolina this week shows just how quickly these headline-grabbing deals can go awry. While the business press on Dell Computers this week focused on its new smart phones and $3.9 billion bid for tech services provider Perot Systems, in North Carolina the news on Dell was all about the closure this coming January of its plant in Forsyth county. The move will put 900 people out of work. And it’s doing collateral damage to the local incentives system that offered the Texas-based computer maker $280 million in potential tax breaks and grants to locate the plant in the state four years ago.

North Carolina’s offer was eventually shown to have been much more generous than other states’.

Dell will repay much of what it’s received so far, including $15.6 million from the city of Winston-Salem and most of the $8.5 million it’s received from the state.

But the closure has become a political embarrassment for local politicians who had been urging the state to go further with incentive packages aimed at luring businesses….