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Layoffs at Columbia IBM facility could lead to reduction in tax incentives

Friday, June 14, 2013 | 9:07 p.m. CDT; updated 6:01 p.m. CDT, Saturday, June 15, 2013

COLUMBIA — Potential layoffs at Columbia's IBM delivery service center could lead to a loss or reduction of  tax incentives IBM received from at least one state program.

Lee Conrad, national coordinator of Alliance@IBM, the employees union for IBM, said sources inside IBM's delivery service center in Columbia have said the company plans to cut 10 workers. He was unsure whether more Columbia layoffs might be in the works.

Cuts at the Columbia site are part of company-wide layoffs that began earlier this week. Alliance@IBM reported on its website that the company had cut more than 2,200 jobs in North America as of Thursday.

"These new delivery centers are not immune to job cuts despite all the promises that were made when they were being set up," Conrad said.

When IBM chose Columbia as the site for a new service delivery center in 2010, it  received more than $28 million in tax incentives from the state, including $8.6 million from the Missouri BUILD progam, $14.7 million from the Missouri Quality Jobs program and $4.2 million from the New Jobs Training program, all three of which are Missouri Department of Economic Development programs.

A previous Missourian report indicated that under the BUILD program, IBM was required to create at least 600 jobs within three years of coming to Columbia in order to remain eligible for those tax credits.

"Many of the programs are performance based, meaning that if employment drops, the benefits also drop," said Jill Kline, spokeswoman for the Missouri Department of Economic Development. But she clarified that the BUILD requirements don't apply across the board.

"IBM’s negotiated job creation requirements are not the same for each incentive program. Therefore, any determination regarding action by Department of Economic Development is program specific."

Kline said that according to IBM's latest jobs report, the company had 529 employees at the Columbia site at the end of the 2012 tax year.

Mike Brooks, president of Regional Economic Development Inc. in Columbia, said IBM is required to have 600 jobs in place by the end of June.

IBM also received incentives from the city of Columbia to establish its service center here. The city bought a building at 2810 Lemone Industrial Blvd. for more than $3 million and is leasing to IBM for $1 per year.

Mayor Bob McDavid said Friday he doesn't expect the layoffs to change the city's lease agreement with IBM.

Brooks said that as part of the 10-year lease agreement, IBM also is paying back a $10 million loan the Columbia Area Jobs Foundation took out to cover the cost of improving the building.

Brooks said he was told by IBM's site manger that the company is on pace to meet its employment requirements.

"My understanding is that IBM remains very committed to the Columbia service center," Brooks said.

Fifth Ward Councilwoman Laura Nauser said that while it was unfortunate that people could be losing their jobs, it is understandable in the current economic environment.

"Even though Columbia has fared better than most communities across the country, when you have national and international companies in your market there are factors beyond your control," Nauser said.

Nauser also said she feels confident IBM will be hiring again.

"IBM is and will continue to be a good partner with our city," she said.

Supervising editor is Scott Swafford.


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Comments

Derrick Fogle June 15, 2013 | 11:14 a.m.

$31 Million / 529 jobs = $58,600 per job created. Also, they've just laid off 10 workers, have about 530 right now, and claim they are on track to have 600 in 15 more days?

Strictly by the numbers, this effort doesn't look very effective, and some of the people involved appear downright dishonest.

(Report Comment)
Ellis Smith June 15, 2013 | 11:55 a.m.

Are there those who actually believe everything IBM tells them (maybe past tense would be more applicable in this case)? [See my post, below, to Richard Saunders. Remember, to IBM Columbia, Missouri represents just another "Siberia."]

If there are, I'd certainly like to meet them. Some friends of mine are selling several marvelous ocean-front lots in NEW MEXICO at reasonable prices. Only a short drive from Santa Fe and the snow ski areas, and my friends are willing to throw in free surfboards. :)

(Report Comment)
Michael Williams June 15, 2013 | 1:27 p.m.

$31 Million / 529 jobs = $58,600 per job created.
___________________

I'd like to hear the full story instead of one seemingly alarmist calculation that stops far short of a full explanation.

For example, $58,000 per job....over how many years are those tax incentives spread? Are those EACH YEAR incentives, or does the company use them until they reach the $31M value and then they start paying the full amount? In either case, after the incentives are applied, what does IBM still pay in taxes per year?

What is the average salary for those 529 jobs? Is it on the lower end, say $35,000/year? $35000 x 529 = $18,515,000 PER YEAR. Of that total salary, what amount of that cash pays local sales tax PLUS turns over local store inventories like cars, clothes, food, shoes, restaurants, and the like and churns the economic engine? Most folks won't save (i.e., bank) 5% of their cash each year, so 90% of $18,515,000 = $16,663,500 goes back into our economy with the ultimate use of paying someone else's salary. If those incentives are used until the $31M is used up, looks to me like salaries alone yield a 2 year payout given these simplistic backoftheenvelop calculations.

Similarly, is the ABC Labs deal paying off?

Show me.

I'm sure these calculations were "estimated" back when the incentives were discussed. It is now time to look at "what really happened" and I'm surprised some enterprising reporter hasn't looked into it. Did it pay off in spades? What's the ROI? Was this a financial waste? Were the incentives a great economic engine? Or were we just **insert Blazing Saddles minister's prayer word use** off?

Inquiring minds wish to know. After all, we might want to do it again. Or we may find out we don't want to. I see lots of "projections" when we think about doing something like this, but where is the followup from media sources answering "OK, what actually happened?" And, in answering these questions, it would be helpful if the media would do IT'S OWN calculations instead of simply reporting someone else's conclusions. OR, give us the facts and we'll do the math.

Besides, is it not true that the answer to the question "Did it work?" bears directly upon recent legislative tax reduction efforts to compete with Kansas? Don't we already have hard data to back up or reject the wisdom of these notions? Why are we still arguing over ivory-tower "projections" when we have the hard data? These are the kind of calculations that businesses do each and every day on their investments; there are no "guesses" on whether something worked or not. Why aren't we doing the same thing here????????

(Report Comment)
frank christian June 15, 2013 | 9:37 p.m.

M. Wms - B-U-teeful!

(Report Comment)
Michael Williams June 15, 2013 | 10:19 p.m.

Frank: I did make one calc error....I should have used 95% of $18,515,000 instead of 90%. The value I noted should be $17,589,250 spent on sales taxes and other purchased stuff.

For our area, sales tax is...what? About $7.25%? So, in sales tax alone, those salaries would yield ca. $1,275,221 in taxes when spent on "stuff". However, buying "stuff" cycles money from the spender to the recipient who recycles that same money into more stuff...velocity of money....and each time that happens a taxable event occurs at the local, state, and federal levels.

As noted, these are back-of-the-envelop calcs which may or may not be accurate. The point is this: Someone knows whether this kind of gov't tax incentive is worth it...or not...to the community that transcends any political philosophy. There should no longer be a question of whether this incentive works or not...to this or any other community. The hard data exists........

The argument SHOULD be over. There is another article in this paper today on the role of a journalist and how he/she can help a community.

Well, I just gave you an idea.

Show me....one way or the other.

(Report Comment)
Ellis Smith June 16, 2013 | 7:44 a.m.

Michael & Frank:

It seems the Fourth Estate may be having a bad week. That happens elsewhere, so please exercise patience, and a modicum of compassion.

The issues you cite may have a degree of complexity. On the other hand, how difficult is it to correctly recall the current names of university campuses, especially when they are part of YOUR university?

Happy Fathers Day. In the Ozarks we've started 2013 summer camps: 15 different camps, with 21 sessions (some camps have two sessions). Not financed by Missouri taxpayers. We await all the lavish news coverage by KOMU and the Missourian. :)

(Report Comment)

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