An example of what happens when global issues invade YOUR town.
Sweetheart deal with Dell leaves sour taste after breakup
Tough global competition kills local call centre despite generous tax breaks
Paula Simons
The Edmonton Journal
Saturday, February 02, 2008
CREDIT: Chris Schwarz, The Journal
The Edmonton Dell call Centre will close in a couple of months.
Remember 2004? It was only four years ago, but it seems like another era.
Back then, the Canadian dollar was worth about 73 cents US. Oil was $40 US a barrel. Edmonton was still struggling to find its economic feet, and Bill Smith was mayor, struggling to hang on for a fourth term.
One of Smith's proudest accomplishments that year? Convincing Texas computer giant Dell to open a call centre in Edmonton.
Smith and the Edmonton Economic Development Corporation pursued the Dell deal doggedly. On his own initiative, the then-mayor offered the company an absurdly generous lease agreement: a token $1 a year for 20 years to lease a six-hectare site at the Alberta Research Park. Smith threw in an additional sweetener -- a $1.1-million property tax rebate.
This deal was negotiated behind closed doors, without public discussion. Because the contract was deemed confidential, voters were never privy to its details. Estimates at the time pegged the cost of the lease agreement between $6 million and $10 million, before the $1.1-million tax rebate. But it was all supposed to be worth it because Dell would pay business taxes and provincial education taxes, and create at least 500 jobs.
At first, all went swimmingly. Dell liked it here so much, it made its call centre bigger. At its peak, 1,500 people worked there. Dell built a spanking new $20-million building and flew in executives to praise Edmonton's educated, efficient staff.
But this week, the Dell dream crashed. On Thursday, less than two years after opening its new call centre, the company announced plans to shut the facility by this summer.
Dell is facing tough competition from Hewlett Packard, which has overtaken it as the world's bestselling computer. The looming U.S. recession isn't helping.
The company is eliminating about 8,000 jobs worldwide.
The layoffs here this week coincide with similar announcements in Oklahoma City and Ottawa.
In Ottawa, the company isn't laying off as many workers, but it has reneged on plans to hire 1,200 more. It's also leaving empty the new 150,000-square-foot business office it just finished building.
It's easy to understand why Edmonton was on Dell's list of places to close.
Since 2004, our economy has undergone a tectonic shift. Unemployment is at 3.8 per cent, the average wage is $24 an hour, oil is close to $100 a barrel and the Canadian dollar has gone up more than 25 cents, trading even with the U.S. dollar.
Call centres work where unemployment is high and wages are low. That no longer describes Edmonton.
It's bad enough that more than 900 Edmontonians are about to lose their jobs.
But have the City of Edmonton and the EEDC been shafted? How sour has our sweetheart deal gone?
It's certainly maddening that we spent all this money, and effort to lure Dell here, only to have our red carpet pulled out from under us. But perhaps this is a timely escape from a lousy deal.
In our near-pathetic eagerness to land this call centre, we gave Dell a dollar-a-year lease on a six-hectare parcel when that land was worth an estimated $3.1 million. Today the land, which sits right near South Edmonton Common and the Anthony Henday ring-road is probably worth at least $10 million.
The terms of the Dell contract are till private. No one at the EEDC will discuss precisely what the deal says about a Dell shut-down, not yet, at least.
EEDC's new president, Ron Gilbertson, said Friday he was still awaiting a full legal briefing on all the ins and outs of the contract, and wouldn't be ready to discuss details for three or four days. As yet, the EEDC has not had a chance to talk to Dell about the legal implications of its planned departure.
However, there is apparently a contract clause that says the deal lapses if Dell employs fewer than 500 people.
If that happens, I'm told, Dell would have the option to buy the city-owned property at market rates. It could then, presumably, sell both the land and the building to a commercial buyer. A restrictive covenant on the building prevents it from being turned into retail space. Its use must complement the Alberta Research Park.
Dell could also walk away from the building, though it's not clear whether it would simply default to the city or whether the city would have to buy it back, and at what price.
Dell's abrupt departure could be our lucky break. Now, we may regain the right to lease or sell that prime land at proper market rates and the city tax accessor may regain the right to collect property taxes on a much-improved property.
Nor is that $20 million Dell building a white elephant. Within hours of Dell's announcement, both the mayor's office and the EEDC were fielding calls and e-mails from prospective tenants, eager to take up the empty space.
This week's harsh news should remind us, yet again, that giving tax breaks and freebies to big companies is a dubious way of doing municipal business.
Corporate welfare is rarely a fair or efficient way to stimulate growth. It too often leaves government with egg on its face. The lack of transparency and accountability is also disturbing.
As voters, we should have had a right to know more of the terms of our deal with Dell, including what would happen if it packed up.
And yet, in a roundabout way, we could end up accidental winners, with a beautiful new office building, a thousand trained and marketable workers, and a chance to recoup our lost rent and taxes. Call it control, alt, delete -- a chance for Edmonton to reboot.
