Despite 15 years of the company’s missing employment targets under three subsequent agreements, the Dutchess County Industrial Development Agency (IDA) voted last week to extend a sales tax exemption for IBM for another five years.
The deal, which, according to IBM spokesman Jeffery Couture, is designed to entice the computer technology giant to “expand and improve” an existing data center, drew fire from unions and others at a recent public hearing the IDA held prior to the vote.
Some of the two dozen people who showed up to witness the normally sparsely attended IDA vote suggested the continued tax relief for Dutchess County’s largest employer is akin to corporate welfare.
The nuts and bolts of the tax abatement agreement allow IBM, which pulled out of Ulster County in the early 1990s but maintains facilities in the towns of Poughkeepsie and East Fishkill, to escape paying 4 percent state sales tax on internal transfers of computers from one division of the company to another, with no stipulations. Under the same agreement, IBM could avoid paying Dutchess County’s full 3.75 percent sales tax by reaching a series of job targets each year.
And, according to Dutchess County IDA chairman Michael Tomkovitch, IBM would have its tax burden lowered by an additional quarter-point should it proceed with a proposal to spend $36 million upgrading a data center in Poughkeepsie.
Still the big kahuna
Perhaps more telling than the agreement passed last Wednesday – which prevailed by a 5-1 vote and is the fourth such tax relief plan awarded to the computer giant – is the information coming to light about IBM, including the number of people it employs and the real economic impact of the company on Dutchess County and the Hudson Valley.
Depending on whom you ask, IBM employs anywhere from 9,903 to 11,600 people between its Poughkeepsie and Fishkill facilities.
“With IBM in Dutchess County, the number that we give is 11,600 at the end of (2007),” Couture said. “Of the 11,600, it’s a mix of full-time and others, both at Poughkeepsie and Fishkill.”
The IDA defines the meaning of a full-time employee by a different standard. Tomkovitch said that of the 11,600 figure provided to his agency by IBM, the IDA’s determination of the actual number of full-time employees directly employed by the company was 9,903. “Obviously, they have a lot of contract employees,” Tomkovitch said of the difference between the two figures.
Peter Winne, director of technology development for the Dutchess County Economic Development Corporation (EDC), comes up with a third number: 10,600 employees, including full-timers and contractors. Both his and Tomkovitch’s numbers for 2007 are beneath the required threshold for IBM to rate the tax break, which is the reason labor leaders and other supporters of fair wage practices were out in force at a public hearing last Monday leading up to the tax relief plan’s approval two days later. The labor people maintained that a laid-off former IBM worker returning as a temporary contractor at a lower pay rate should not be counted as a qualifying employee for a sales tax exemption, and neither should a relatively low-paid foreigner with a work visa, assuming a role once performed by a full-time worker making a living wage.
Labor people conjectured that IBM was getting away with doing just that.
Although Couture maintained that a further breakdown of the 11,600-employee figure was unavailable, the county’s data indicates that IBM lost about 1,700 full-time, certified employees from 2003 to 2007.
Regardless of who is figuring the employment levels, according to county officials the impact of IBM is significant on the local economy. Winne is preparing a cost/benefit economic impact analysis of IBM on surrounding communities, and said preliminary calculations indicate that the company’s impact on the region is massive in terms of ancillary jobs created and dollars being paid and spent in Dutchess.
Winne also calculated that the local IBM payroll, based on average salaries, is more than $770 million annually. In turn, Winne said, that results in another $770 million “in terms of dollars being spent” in the county.
That, he said, means that between salaries and subsequent spending, IBM is arguably responsible for $1.54 billion annually being pumped into the local economy.
Complete figures are not yet available and are quite complicated to assemble because of the large-scale impact the company has and two different tax rates between the Poughkeepsie and Fishkill locations, he said.
With stakes that high, though, Tomkovitch said it’s a balancing act between keeping the biggest game in town and keeping the playing field level.
“The bottom line is, (IBM) is important to Dutchess County,” he said. “In Dutchess County, if we lost 12,000 employees, it would be a disaster. On the other hand, we don’t want to give away the farm. They can’t operate here for free.”
Cheap ride, but not free
According to county records, IBM has paid more than $7 million in sales tax over the last five years on the internal computer and software transfers that are the subject of the tax abatement plan. The company has also paid more than $614,000 to the Industrial Development Agency in those five years and has spent more than $5 billion in the last 10 years on both the Poughkeepsie and Fishkill locations.
And, under the tax abatement deal, another $36 million in upgrades will lower IBM’s local tax bill even more. That is, if the company decides to locate a new data processing computer in Poughkeepsie as opposed to elsewhere.
Couture said that IBM has an existing data center at the Poughkeepsie site that is used by companies looking to process large quantities of information. IBM, he said, is looking for a site within its network of data centers across the world to develop into a premiere data processing facility. Poughkeepsie, he said, is in the running.
“We want to expand and improve (the data center) in terms of reliability and capability, especially the electric,” Couture said. And, with the sales tax abatement plan passed, there is a “much greater chance” that IBM will invest in the Poughkeepsie data center, he said.
And potential investment like that, Tomkovitch said, is exactly the return the IDA is looking for on the quarter-point tax break it is offering.
“We want to encourage IBM in Poughkeepsie to make their site stronger; to make it more receptive to outside services,” Tomkovitch said. “It makes them more competitive.”
Realistically, Tomkovitch said, the tax abatement deal “is a fair appraisal. If they don’t meet the benchmarks, they don’t get the benefit.”