Nashville Vote Is Music to Dell's Ears:
Final $166 Million Incentive Package Approved
It's a done deal for Dell Computer (www.dell.com) and Nashville, whose US$166 million incentive offer to the Texas-based PC power has been one of recent years' most widely debated and analyzed.
Now, however, the Davidson County Metro Council has approved, by a vote of 27-11, the remaining $46 million of the incentive package that was still at issue. That seals the deal for Dell, which will build a plant on an 800-acre (320-ha.) site east of Nashville International Airport, where it's expected to employ at least 3,000 workers within five years.
Controversy, though, still surfaced at the late July meeting at which the final portion of the Dell incentives got the Metro Council's thumbs-up. Several council and audience members ardently argued against the incentives. In the end, however, the final 27-11 vote reflected the same pro- and anti-incentive division of earlier council votes on the issue.
With the Metro Council vote, Dell's first-phase construction plans, as well as the final incentive package, took concrete form.
The Nashville expansion is the sixth new plant announced since January 1998 by Dell, which now ranks as the world's No. 3 PC maker. The company initially intends to build a 300,000-sq.-ft. (27,000-sq.-m.) manufacturing facility and a 250,000-sq.-ft. (22,500-sq.-m.) office building on the land, Dell officials said.
The buildings and equipment are valued at $100 million. After the council vote, the city began immediately demolishing buildings on the former (now-closed) Middle Tennessee Mental Health Institute on the east side of the Dell site.
"We've said straight through that we want to move quickly," said Peter Scacco, Dell director of corporate public relations. "Our original target date of building this plant by next year is still possible, I think."
Dell's facilities should be ready for occupancy in 10-18 months, said Robert Gowan, a special assistant to Nashville Mayor Phil Bredesen, who led the area's pursuit of Dell and the accompanying incentive offer.
Dell's Nashville presence is expected create 1,000 new jobs by the end of 1999. Over the next five years, the company's total employment is projected to increase to 3,000. While Dell is building the new Tennessee plant, it will lease 245,000 sq. ft. (22,050 sq. m.) in Lebanon, Tenn., and another 50,000 sq. ft. (4,500 sq. m.) in Nashville.
The Dell deal marks the latest, and largest, move to broaden Nashville's economic base by Mayor Bredesen, who'll leave office in September of 1999. In the 1990s, Bredesen extended major property tax breaks to facilitate major expansions by companies that have included Columbia/HCA Healthcare, Dollar General, Gaylord Entertainment, Ingram Industries and publishing operation Thomas Nelson.
The Dell incentive package, however, dwarfs those earlier efforts. Bredesen, though, has maintained that the area will be a winner, even if it only breaks even with the Dell subsidies. Dell, the mayor asserts, represents the high technology that's driving the national economy, and its Nashville-area operation will add the first quality manufacturing jobs in the area since Ford Glass opened a local plant in the mid-1950s.
Tennessee Economic and Community Development Commissioner (www.tnedc.org) Bill Baxter echoed the mayor's enthusiasm, calling Dell's move to "Music City" "potentially Tennessee's largest deal of this decade."
Nashville's three mayoral candidates also voiced support for the Dell deal. In addition, all said they'll aggressively push economic development, including offering major business location incentives, if they succeed Bredesen.
Such major incentive packages are invariably accompanied by intense scrutiny and a wave of economic impact analyses. The Nashville-Dell deal was certainly no exception.
Bredesen has touted the potential long-term economic impact of the Dell complex. The PC maker's local area operation could grow to employ 8,000 and be a $97 million economic boon to the city over 40 years, the mayor said.
Analysts at The Tennessean (www.tennessean.com) begged to differ, however, about the plant's initial economic impact.
The Nashville-based newspaper published an analysis a month before the final Metro Council vote that found that when the "indirect costs" associated with the Dell operation (e.g., schools and other city services) were added to the incentives, total costs over a 40-year span outstripped new local tax revenue by roughly $74 million (in 1999 dollar values).
The mayor blasted the newspaper's analysis. The Tennessean, Bredesen asserted, had found that the city wouldn't financially benefit from the Dell deal even if all the incentives were removed.
The Tennessean fired back in print that its analysis of the deal hadn't removed the incentives from the equation. Then, in response to the mayor's comments, the newspaper did analyze the deal without the incentives.
What that Tennessean analysis concluded was that the city would show a net gain of $30 million-plus over the 40-year period if Dell paid its full share of property taxes and didn't receive other location incentives. (The Dell deal provides both location incentives and a 40-year property tax exemption.) In addition, The Tennessean calculated that if Dell paid its full share of property taxes but still did receive the other location incentives, the city would realize a net benefit of roughly one $1 million over 40 years.
The big difference in the analyses by the mayor and the newspaper seems to be the costs involved in providing city services to Dell-related employees. Bredesen puts that cost at $46.6 million over 40 years; The Tennessean estimates that the cost will be some four times higher.
On the other hand, the payoff for the Nashville area could also be bigger than the 3,000 jobs that Dell is currently committed to create.
Given its 800-acre Nashville site, Dell certainly seems to have some sort of larger plan in mind, analysts say. Reportedly, Dell executives have talked with economic development officials about a possible long-term plan for a 2.3 million-sq.-ft. (207,000-sq.-m.) local-area operation, which would likely be large enough to accommodate some 10,000 employees.
At the same time, Dell has apparently secured some incentives that may up the value of the incentive package to more than the $166 million total that analysts have estimated.
For example, the PC giant looks like it may reap a substantial economic boon in the arrangement it's fashioned to sublease the deal's free and leased land. Industry analysts anticipate that suppliers will flock to locate near Dell's new plant. Dell should be able to make it well worth their efforts: The deal allows the PC maker to sublease land to suppliers while offering them a 40-year property tax break.
Even before the dueling analyses, the deal had to negotiate several substantial bumpy stretches in the road.
Some of the most vocal early opposition came from Nashville acupuncturist Maurice Kuttab. Kuttab, who also opposed the ultimately successful effort to use public money to finance the $292 million stadium for the Nashville-based Tennessee Titans NFL professional football franchise, charged that the Dell incentive deal "creates a new class of nobility that doesn't have to pay taxes."
The acupuncturist was particularly prickly about the deal's giving the Texas-based PC power free use of the Middle Tennessee Mental Health Institute's 150-acre (60-ha.) site, which analysts value at $6.5 million.
Bredesen, however, countered that the site had long been on the market with no takers.
Early on, local area economic development officials also had to rethink how to structure the Dell incentive package. Initially, they considered letting Dell collect up to 75 percent of sales taxes, which would have given the company some $1 million annually. Later, however, both sides backed off when Mayor Bredesen said he thought such a move would be illegal.
Instead, Dell is receiving a $500-per-year credit for each employee on its Nashville payroll, an incentive that's also available to other major technology-related projects and corporate headquarters that locate in the area. (The Metro Council, however, must approve the credit on an annual basis.)
With the Metro Council vote, at least one thing seems certain: Music City has landed the first major U.S. operation that Dell has set up outside of Texas, where 17,000 of its 24,000 worldwide employees are based in the city of Round Rock.
The Dell deal's true local-area value will likely become clear only with time - particularly in how future economic conditions impact the PC maker's operations.
Here, in brief, are some other details of Dell's Nashville incentive package:
Land: After the bonds to build its facilities are paid off, Dell can, if it so chooses, buy the Middle Tennessee Mental Health Institute site for what analysts call "a nominal fee." Initially, Dell will lease the buildings, which will pay off the bonds. The local airport authority is leasing Dell some 645 acres (258 ha.) of land that the airport arm owns. The lease rate has not yet been set, but analysts are speculating that it may be as low as an annual rate of 6 percent of the land's value. The Federal Aviation Administration must approve the final rate.
Taxes: With the two buildings currently planned, the 40-year property tax break on all Dell operations would yield tax breaks, including the value of the Middle Tennessee Mental Health Institute land, that would total $62.4 million over 40 years.
Training/recruitment and infrastructure: Dell will receive significant employee recruiting and training incentives, administered through the Nashville Career Advancement Center, plus site-related infrastructure improvements. Among those incentives are $20 million in job training credits, $10 million in job tax credits and some $12 million in infrastructure improvements.