Google, Microsoft, Amazon, Apple and Facebook, America’s most well-known brands and most prosperous firms, are demanding that states and localities provide them ever-larger economic development subsidies to support their data centers. Last year these five tech giants reported nearly $120 billion in pre-tax profits, and yet they told states and localities they needed financial help to build new data centers, structures essential to their business operations. Their efforts resulted in more than $2 billion in public support to build 11 new data centers. The facilities would create 1,174 long term jobs, amounting to an enormous per job subsidy of $1.95 million, according to Money Lost to the Cloud, a new report from Good Jobs First which I authored.
"Last year these five tech giants reported nearly $120 billion in pre-tax profits, and yet they told states and localities they needed financial help to build new data centers."
Data centers have enormous footprints. Apple’s one in Maiden, NC has 500,000 feet of floor space, enough to fit nine football fields inside. And it is expensive – costing more than $1 billion, most of it for the endless racks of expensive servers and the powerful air conditioning required to keep the heat-spewing electronics cool. But despite this cost, the data center will employ fewer than 50 permanent workers, a subsidy of $6.4 million per employee, the most of any deal in our survey.
After Apple threatened to take the deal to neighboring Virginia, North Carolina officials changed tax rules that applied only to Apple to win the deal. Maiden, a city that struggled with high unemployment after the once-thriving furniture industry closed its last plant, agreed to partial property tax abatements. Economic development officials argued that drawing Apple to Maiden would create new jobs and diversify the local economy. But the high-tech computer maintenance jobs weren’t well suited for blue-collar workers whose talent was furniture construction. Though few locals wound up working for Apple, the company will nonetheless save $300 million in taxes over the next three decades.
Tech companies have grown skillful at dangling the prospect of jobs and playing one community off against one another. But the amount of tax subsidy is never what seals the deal in determining where a new data center is located. Data centers consume two percent of the nation’s supply of electricity, enough to power 6.4 million homes. Low energy costs – and for brand-conscious firms, energy derived from renewable sources – is the most important factor in locating new data centers. Positioning these vital centers far from the threats of hurricanes, earthquakes and floods and close to fiber infrastructure are other important considerations.
"Tech companies have grown skillful at dangling the prospect of jobs and playing one community off against one another."
And yet, tech giants continue to push states to provide subsidies, lest they fall into another suitor’s arms. They do so in part, through an insistence on secrecy. Many projects are negotiated with code names that disguise corporate identities. Lawmakers are compelled to vote on deals without even knowing to whom they are giving tens or hundreds of millions of taxpayer-financed subsidy dollars.
Offering seven-figure per jobs subsidies is a losing proposition for taxpayers and communities. Utah officials realized this when they backed out of a recent $260 million 20-year data center subsidy deal with Facebook. They understand there were other opportunities for the industrial land where the project would be located, opportunities that would result in more jobs for local residents. The State Board of Education worried that the loss of property tax revenue would deprive schools of necessary funding as they quashed the overly generous deal. Facebook went to New Mexico, Utah’s competitor, that offered a package of tax exempt industrial revenue bonds and other tax subsidies to locate its data center in their already heavily subsidized Los Lunas project.
"In many communities, budget cuts have left class sizes expanding, longer wait lists for public housing, and growing lines at church food pantries. All the while there are no lines at the corporate subsidy window."
It doesn’t have to be this way. States and cities don’t need to sacrifice good schools and high-quality public services for the prospect of a few good jobs. States that offer subsidies to data centers should establish reasonable per job caps of $50,000. They should mandate that subsidy deals should be negotiated in the light of day with no concealed corporate identities. And they should learn from Utah and know when to fold their hands and walk away from high-stakes bidding wars.
Data centers can be a good addition to local economies and a big factor in strengthening local fiscal conditions, but only if they pay their fair share of taxes. In many communities, budget cuts have left class sizes expanding, longer wait lists for public housing, and growing lines at church food pantries. All the while there are no lines at the corporate subsidy window. It is time to change that story.