2019-11-11_Bloomberg_Businessweek

◼ TECHNOLOGY BloombergBusinessweek November 11, 2019

PlantingDataSeeds

Indiana’sMidwesternneighborshavelureddatacenters,

in partwithgeneroustaxincentives

①Altoona,Iowa

②CouncilBluffs,

Iowa

③CentralOhio

④WestDes

Moines,Iowa

⑤Papillion,Neb.

⑥Waukee,Iowa

Company

Facebook

Google

Amazon

Google

Facebook

Microsoft

Google

Apple

Known

incentives

$26m

$56m

$81m

$44m

$37m

$20m

Unknown

$213m

Investment

$1.5b+

$2.5b+

$1.1b

$1b

$1.5b+

$734m

$600m

$1.3b

Ind.

25

THEBOTTOMLINE Indianais justthelateststatetooffertax

incentives for data center development, but its long time horizon for

sales tax exemption marks a new extreme.

tech giants such as Apple, Facebook, and Google,
which are constructing or have constructed mas-
sive cloud campuses in nearby Iowa, Ohio, and
Nebraska. While 30 U.S. states offer some kind of
tax incentive for data centers, Indiana’s law stands
out from those of its neighbors, whose provisions
typically expire within 10 to 15 years of construc-
tion. Many of the Indiana law’s advocates will be
dead before data center builders owe the state any
money. (Soliday, for example, is 74.) “It’s hundreds
of millions of dollars over the course of 50 years,”
says Kirk Offel, managing partner of Overwatch, a
consulting firm that’s advising data center devel-
opers in Indiana. That’s money that won’t be avail-
able to public schools, which rely heavily on state
sales taxes.
Although finished data centers provide relatively
few jobs, a construction boom is an attractive
prospect in parts of the deindustrializing Midwest
with few alternatives. Facebook has said it would
spend $16 billion on data centers in 2019 alone;
Google, $13  billion; and Apple, $4.5  billion.
Together, these three companies, plus Microsoft
and Amazon, accounted for the bulk of the
$119 billion invested in data centers worldwide
last year, according to Synergy Research Group.
“State governments are looking at them as a core
investment in the expansion of the economy,” says
Sean Reynolds, managing director of the Midwest
data center practice at Jones Lang LaSalle, a
commercial real estate firm.
In Indiana, where the state sales tax is 7%, the
new law guarantees at least $70 million in savings
to a company that commits to building a $1 billion
facility. The law also waives taxes on electricity
use, worth additional millions in savings, and
municipalities are certain to add further incentives
as they bid against one another. The law has no
significant job creation requirements or worker
protections against automation. At the last minute,
lawmakers dropped a provision requiring that 75%
of data center labor and equipment be sourced
locally. Indiana is the state most vulnerable to job
losses via automation, according to the Brookings
Institution, a Washington think tank. And any
tax breaks offered on equipment aren’t one-offs:
Data centers replace server stacks at least every
three years.
Other states may offer rival measures. In
Michigan, lawmakers have proposed to exempt
data centers from sales taxes until 2055. Illinois,
after six years of lobbying, passed a law this
summer exempting data center operators that
invest at least $250 million from state and local
sales tax. Developments must create 20 full-time

DATA:STATEANDLOCALDISCLOSURES

jobs, but incentives last no more than 10 years. “We

struggled in Illinois for a long time with getting the

data center bill to get any momentum at all,” says

Reynolds.“Wesawsuccesswhenthesponsorsof

thebillweresmartenoughtorealize,we’vegot

togetlaboronourside—electrical unions and

pipe fitters, who see data centers as unbelievable

sources of employment.”

The Indiana law’s passage required years of

lobbying by the industry, along with the persistence

of Mark Messmer, the Republican state senator

who first introduced an exemption bill in 2013.

For years, other lawmakers balked at the lack of

promises on direct job creation. Messmer says

he stressed that the jobs are indirect, such as air

conditioning contract work to cool the data centers’

server racks. He also operates Messmer Mechanical

Inc., the 50-employee heating and air conditioning

company his father started in 1970.

Asked about the prospect of profiting from the

legislation, Messmer says, “If there’s ever a data

center in my county, we could pursue them as

a customer.” As far as losses to state coffers, he

doesn’t see a financial sacrifice being made by

Indiana. “Seven percent on zero is zero,” he says.

“You are giving up nothing because we were getting

nothing.” If Indiana and its neighbors want to stop

giving away needed tax revenue, they have to stand

together, says David Dunn, chief operating officer

of H5 Data Centers. “If every state said the industry

had to pay,” he says, “there wouldn’t be any reason

to pit states against one another.” �Mya Frazier

Reporting for this story was supported by the

McGraw Center for Business Journalism at the City

University of New York’s Newmark Graduate School

of Journalism.

“It’s hundreds

of millions of

dollars over

the course of

50 years”