Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Welfare-Case Companies: IBM Corporation


The company makes $100 billion in annual revenues, but it's not above accepting millions in taxpayer-funded incentives when cities bid to win Big Blue business.

Help Wanted: Seeking driven, broad-minded individuals to become a part of a century-old, multinational corporation's subsidy program. Must have basic computer skills, good customer relations, and work competently knowing their employment costs $50,000 of local taxpayer money. Eye contact with neighbors and HTML skills a plus.

A world leader in computer manufacturing, mainframe systems, and IT consultation, IBM (IBM) is one of the largest and most profitable US-based tech companies in history. Its name is synonymous with cubicle farms, glowing green text, and carpal tunnel syndrome. And with nearly 400,000 workers employed worldwide, IBM is extremely focused on employee relations and willing to move to an area suffering from a sluggish job market.

But IBM doesn't up and build facilities in blighted communities out of the goodness of its heart. Like cities vying for the right to host the Olympic games, these communities must compete aggressively for the IBM torch. As is the case with the Olympics, a potential IBM host city needs money, and a lot of it. An ironic scenario considering it's the community's financial woes that has brought it to its knees before IBM in the first place. Nevertheless, you have to spend money to make money, and that's exactly the mantra Columbia, Missouri, a recent IBM host city winner, is banking on.

Far from being a tax haven, the state of Missouri opened up its welfare rolls and ponied up more than $30 million in hard-earned taxpayer dollars earlier this year to have IBM build a new technology service delivery center in Columbia. Although its annual revenues exceed $100 billion, IBM will receive more than $28 million in tax credits from Missouri, including $4.2 million for job training and $3.2 million for office space. In addition, IBM will pay only $1 per year in rent over the next 10 years (with an optional five-year extension), and the state is giving the company a half-off deal on personal property taxes on its equipment.

In return, IBM promised to create up to 800 technical professional jobs and was set to begin hiring this summer with the facility fully staffed and operational by the end of 2012. The city estimated that it will earn $7.3 million in city tax revenue -- and another $4.3 million toward the public school system -- over the next decade thanks to IBM's arrival. At a cost of roughly $37,500 per employee, Missouri taxpayers had better hope that the state got the math right.

North Carolina recently waged a similar bet on the global technology giant by offering upward of $8 million in tax rebates to an IBM Corp. subsidiary. In return, IBM Lender Business Process Services Inc. will create 600 jobs with a new service center in Research Triangle Park. While deals between North Carolina and IBM have been made for decades with the state hosting IBM's biggest corporate campus of 10,000 employees, North Carolina's IBM workers are getting the raw end of this one. Another desperate victim of the recession, North Carolina is allowing the company to pay these new workers nearly $8,000 below the local average wage.

But North Carolina's IBM gripers can get in line behind those in Austin, Texas, who have long complained about the company moving operations to communities with lower wages -- like North Carolina -- to reduce costs.

IBM got $5 million in state and local tax breaks for moving its New England corporate center to Littleton, Massachusetts, in 2008 to create 42 jobs over a 10-year period. Iowa doled out $53 million for a facility in Dubuque that would employ 1,300 people. New York's recent investment in IBM included $140 million in subsidies in exchange for 1,000 new high-end jobs and retention of 1,400 more -- a move that hasn't seemed to help heal the state's metastasizing tumor of a deficit. Then again, no single corporation has that kind of radiation power.

But what happens if IBM lays off the workers whose jobs it was paid to create? Last year, the company cut roughly 10,400 jobs from its North American workforce and this year Big Blue has let thousands more go. Fortunately for IBM, it's off the hook in terms of paying back those subsidies.

That's just the risk a city takes for that grand Olympic dream.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos