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Do Tax Breaks For Data Centers Make Sense? (datacenterfrontier.com)
1sockchuck writes: Does it make sense for state to offer tax incentives to lure huge data center projects? After an extended debate, legislators in Michigan have approved tax breaks for a $5 billion data center in Grand Rapids. The project from Switch, which previously built the SuperNAP in Las Vegas, brought the debate into stark relief due to the size of the project — an estimated 2 million square feet of data center space. States competing for projects often find themselves in a bind, since the highly-automated facilities create a limited number of permanent jobs, but many states already offer juicy incentives. Michigan ultimately sought a middle path, tying the tax breaks to job creation goals. If the data center jobs don't materialize, the breaks disappear.
As people and the article have pointed out, a massive data center build (often in the middle of nowhere) doesn't really benefit the local population of an area. Unless the company is moving a ton of admin jobs along with it, the tax base doesn't even increase when all these incentives are factored in. You'll have security guards, facility engineers (HVAC etc.) and a very small rack-stack-fix type of staff. Also, in the case of public cloud style data centers, everything beyond the physical hardware replacement is software-controlled once the core is built out, so you won't have as many traditional sysadmins employed. Plus, the added power and public utility costs add up as well when you consider generation costs, building or improving roads, etc.
The thing about these special tax breaks is that states have to play Prisoners' Dilemma with each other. I live in a high-tax state (NY) and we're always hearing large companies with big New York operations threatening to move to North Carolina, Florida, Texas, etc. if they don't get a special tax deal. They do this because they know they can - the low tax states will do crazy deals to get companies to move there. A company I worked for moved to Orlando, and the state and city were practically building the company a new headquarters, building new roads and easing building restrictions to suit their needs. Plus, they got some insane tax abatement for 10+ years and cheap utility rates on top of that. When companies don't have to pay normal levels of tax, the only possible upside is increased property, sales and payroll taxes from employees that move in. The high tax states have to do at least some of this also, but it's an even worse deal for them usually since they have greater expenses to cover. Florida and other low tax states spend a lot less on education, they don't have to remove snow in the winter or perform as much road maintenance, etc.