Dell plant closing despite $280m in potential subsidies: We told you so.

Dell Computers, Inc. has announced that it will shutter its Winston-Salem plant over the next few months, laying off all of the factory’s 905 workers. With roughly six applicants for every opening in the current job market the re-employment prospect for these workers is bleak. Out of respect for these workers and their families and to prevent this from happening again in the future the state should seriously consider enacting major reforms to its business subsidy programs. There are already a few good places to find recommendations for how to make NC’s subsidy deals more accountable and more effective (hyperlinks to these reports below).

In media reports about the closing representatives site the steep decline in desktop sales as the chief reason. That may be true but consider the fact that in determining how much to award to Dell in state subsidies the factor that weighed most heavily was, in fact, sales projections. This flaw in the state’s economic model (relying much too heavily on what company sales might be 5, 10, and even 15 years down the road) is the most serious flaw in the state’s method for determining how much to offer companies. To read more about these flaws and others, and to see more details about the assumptions the state made about the Dell facility, read our report from 2007, “GETTING OUR MONEY’S WORTH? An Evaluation of the Economic Model Used for Awarding State Business Subsidies.”

In addition to overhauling the ecomomic model used to determine the optimal bids for these deals, the state needs to substantially increase the wage standards for the subsidized jobs (Dell got a $280 million deal despite only paying its workers on average $28k per year) and target subsidies to distressed areas. Coincidentally, these recommendations were made earlier this year by UNC faculty researchers in their report to the North Carolina General Assembly Select Committee on Economic Development Incentives.