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, including a controversial $200 million plus package used to entice Google to build a location in the Blue Ridge Mountains two years ago. The day after the Dell closure was announced, Governor Bev Perdue, who was not in office when the incentives were offered, said the company would be repaying every “red cent” it owed the state.

Opponents to these kinds of deals, hope the Dell experience would cause politicians to think twice before they put together their next deal. “No matter how big the incentive package, operational decisions by businesses headquartered out-of-state will be driven by corporate financial considerations and not by any sense of loyalty to the community being left behind,” argued Robert F. Orr, Executive Director of the N.C. Institute for Constitutional Law, which had sued the state over the Dell package. If government is going to use these kinds of deals, Orr said “those investments should be in smaller, local businesses and not in multi-billion dollar interstate and international businesses.”

With state budgets $350 billion in the red over the next two years, it will be interesting to see whether the incentives contests that have pitted state against state in order to woo major corporations slow at all. And whether the Dell story plays any cautionary role.

The original post is created by: BusinessWeek – Management IQ