“The average cost of their 11 ‘megadeals’ profiled here is astronomical: $1.95 million per job. At that price, taxpayers will always lose, because a worker will never pay $1.95 million more in state and local taxes than public services she and her dependents consume,” the report states.
Sound familiar? It should. Iowa has two of the cited “megadeals,” which the report describes as subsidy deals of $50 million-plus. Both Iowa deals were with Microsoft — a $107.3 million subsidy in 2014 and a $65.3 million subsidy in 2010 for its “megadeal” list. Both fell below the $2 million per job average cost, but the Microsoft megadeal costs per job were $1.28 million and $964,627, respectively. In addition, the report notes competition between Washington and Iowa in 2010 for a Microsoft center, and Nebraska and Iowa in 2013 for a Facebook project.
Good Jobs First’s recommendation to all states: Cap data-center subsidies at $50,000 per job and be ready to walk away from bidding wars that guarantee losses for taxpayers.
In the new report, “Money Lost to the Cloud,” author Kasia Tarcynzska finds that states routinely subsidize data-center projects with special tax breaks that are not central to companies’ choices on where to locate.
“Decisions on where to locate data centers — which consume large amounts of electricity but employ few workers — are primarily based on the availability of reliable, low-cost electricity,” she wrote.
“Despite their New Economy allure, internet companies have fully embraced Old Economy habits of playing states and localities against each other in bidding wars, putting public officials in a ‘prisoners’ dilemma’ and causing governments to grossly overspend for trophy deals.”
Iowa, which has made deals with the likes of Google, Microsoft and Facebook, is one of eight states with special sales and use tax exemptions on electricity purchased by data centers.
In addition, the report notes, property taxes are often the largest taxes paid by companies, and local property tax abatements can be the largest component of subsidy packages — but frequently are not disclosed.
“Data centers create very few permanent jobs, so one of the biggest benefits that a community can hope for is a stronger tax base. But that benefit fails to materialize when the major taxes such as sales, utility and property levies are abated,” the report states.
The report concludes with a “larger question,” one that should be asked of any subsidy at any time when state and local officials try to attract development from big, stable companies. Why, Tarcynzska asks, “should communities use their limited financial resources to subsidize such self-sufficient companies to build something the companies must have?”
Posted by Mike Owen, executive director of the Iowa Policy Project