Data Centers, Tax Credits, and the Conservative Case for Cleantech

In December, officials in Michigan approved the construction of a $2 billion data center in the western part of the state that’s projected to create 1,000 jobs over the next 10 years.

The company behind the facility is Las Vegas-based Switch, which builds and operates large-scale data centers. According to Switch’s website, all of the ones it has constructed and brought online are in Nevada, but now it’s moving into other states. Data centers are places where servers owned by Switch and its clients, who include Google and Amazon, store information and beam content to Internet-connected devices.

Because servers consume lots of electricity, it often makes sense for them to be located in areas where they can tap into renewable energy sources, such as wind and hydropower. Another factor that Internet giants consider in deciding where to build a data center is tax incentives offered by state and local governments, says Mark Pischea, a political consultant who laid out the “conservative case for clean energy” during a presentation Tuesday in Madison, WI.

Pischea is a partner at The Sterling Corp., a Lansing, MI-based group that advises and raises money for Republican leaders. His view is that while Democrats have historically been the more bullish party on cleantech, it’s an issue that can and should be embraced by the political right. If that is to happen, one key will be conveying the benefits of renewables in a way that resonates with conservatives, he says—in particular, access to cleantech resources is attractive to businesses making a big investment like a data center that has the potential to create jobs.

Under the terms of Switch’s agreement to build the new data center, the company will reportedly not be taxed on some of the electronics it purchases for the facility. The result could be $1.1 million in annual tax savings, as MLive.com reported earlier this year. Pischea says that’s an acceptable trade-off for the benefits, which include not only the new jobs, but also $5 billion in new investment in Western Michigan over the next decade, as Switch has projected.

Wisconsin has itself offered tax incentives to large corporations that construct new facilities in the Badger State or relocate there—even high-tech ones. In 2014, Amazon opened the first of two new buildings that comprise a 1-million-square-foot fulfillment center in Kenosha, WI. It’s expected to create more than 1,600 new jobs, according to the Kenosha Area Business Alliance.

The Wisconsin Economic Development Corp. said it would allow the e-commerce giant to claim up to $10.3 million in tax credits, according to a report by the Milwaukee Business Journal. However, that’s reportedly contingent on the facility creating 1,250 jobs and leading to $42 million in capital expenditures.

But compared with other states, Wisconsin today is less likely to attract a company like Amazon or Switch to build a data center there, Pischea says. That’s because renewable energy sources are not as plentiful in Wisconsin as they are in states like Michigan and Oregon, he says.

(To be fair, there are data centers in Wisconsin, including one in Milwaukee that TierPoint recently acquired and renovated.)

Part of the divide between Wisconsin and other states has to do with geography. Google decided to build three of its data centers in The Dalles, OR—which is located on the banks of the Columbia River—in part because of access to hydroelectric power, as I reported for Isthmus last year.

But companies like Google also look at a state’s commitment to cleantech, Pischea says. While Wisconsin lawmakers did in recent years enact a requirement that utilities get 10 percent of electric power from renewable sources, other states, like Minnesota, have set the bar higher. That state is required to generate 25 percent of its electricity from renewable energy by 2025, and appears to be well on track to meet or exceed that target; last year, 21 percent of Minnesota’s electricity came from renewables, the state’s commerce department said in March.

Pischea says that part of his mission to persuade more GOP leaders to back renewables is getting them to be less beholden to interest groups that support using coal and other fossil fuels to generate energy. “The fossil fuel industry has had a hammer-lock [on the party] for so long,” he says.

Still, there are those who argue that when governments use tax breaks to get data centers built in their backyards, the ultimate result is a lower tax bill for deep-pocketed tech companies.

“It’s been called a race to the bottom,” says Scott Resnick, who works in the software field at Madison-based Hardin Design and Development, and has previously served on the city’s Common Council. “Regionally, we are regularly fighting with our neighbors for tax packages.”

Jeff Buchanan is the editor of Xconomy Seattle. Email: jbuchanan@xconomy.com Follow @_jeffbuchanan

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