Another voice: Subsidizing Server Farms in Iowa

Iowa throws a lot of money at the server farm industry, even though the state’s assets would make it attractive for the industry even without lucrative subsidies.

by Kasia Tarczynska, Good Jobs First

Facebook just announced a third expansion of its $1.5 billion data center in Iowa. This followed a similar move by Google for its server farm in the state. These developments are fruits of the effort by officials to encourage big-name tech companies to locate in Iowa. This private investment, however, does not come free. For example, the $1 billion Google expansion is supported by $19.8 million in state subsidies. Since 2007, Iowa has offered almost $100 million in state tax credits and refunds to Facebook, Google, and Microsoft.

Google data center facility in Council Bluffs, Iowa. Credit: Google

Google data center in Council Bluffs, Iowa. Image via Google

Subsidies to server farms raise a lot of questions and controversy.  A key issue is whether the tech companies should get subsidies at all, given that their location decisions are based primarily on the availability of cheap electricity (preferably renewable), plenty of land, cooler climate, access to water, and lack of natural disasters. These make places like Iowa seem a natural choice.

Because data centers are capital intensive projects, they usually create a small number of jobs and thus per-job subsidies tend to be quite large.

Despite these factors, Iowa still throws lots of money at the industry.  Here is a quick look at Iowa’s subsidies to the three tech giants:

Google, located in Council Bluffs

2007- The company received $1.4 million in state tax credits and $48 million in local property tax abatements. Google was the first big-name tech company to locate a data center in the state.

2013 – The Iowa Economic Development Authority approved another $16.8 million in tax credits for a second Google facility.

2015 – The company received an additional $19.8 million in state sales and use tax refund for an expansion. Google will also pay only 20 percent of local property taxes for 5 years.

Altogether, Google promised to invest $2.5 billion but create just 70 jobs.

Microsoft, located in West Des Moines

Microsoft’s state subsidies started on a small scale, $568,000 in 2008 and $131,242 in 2011.

2013 – The company was awarded $20 million from the state’s High Quality Jobs Tax Credit program for a $679 million investment.

2014 – EDA approved $20.3 million in state tax credits to Microsoft for another round of expansion. The city chipped in $18 million for construction and infrastructure improvements on the site. $3.5 million in Tax Increment Financing was committed to build a water facility that will be used by Microsoft, and others, to cool servers.

Facebook, located in Altoona

2013 – After an intense and secretive competition with Nebraska, Iowa won Facebook’s server farm.  The company was approved for $18 million in tax credits for creating 31 jobs and investing $1.5 billion (the EDA report lists Facebook under Siculus, Inc, a Facebook initiative). The company also enjoys discounted water rates and has received money through Tax Increment Financing.

There is one additional thing that stands out: Google, Microsoft, and Facebook are rich tech companies that easily can afford any costs related to construction and operation of those server farms.  As one journalist put it: “Google needs a tax break like Bill Gates needs food stamps.”

Kasia Tarczynska is a research analyst at Good Jobs First, http://www.goodjobsfirst.org. She has a Masters in Urban Planning and Policy from the University of Illinois at Chicago. This blog originally appeared on the Good Jobs First blog at this link.
Good Jobs First is a national policy resource center for grassroots groups and public officials, promoting corporate and government accountability in economic development and smart growth for working families.

Wind in your Facebook

Most of the “rich incentives” in Iowa’s economic development playbook do not incentivize anything that would not happen anyway. But Facebook shows clean energy does matter, something more companies should consider when choosing where to locate or to keep operations.

This item reported by The Des Moines Register’s Donnelle Eller came as a breath of fresh air to those concerned about the energy demands of big data centers coming to Iowa.

Reported Eller:

Facebook says it will begin operating its new data center in Altoona in early 2015 powered entirely by renewable energy that will come from a new wind project in Wellsburg, Ia. …

Iowa has become home to a growing number of massive data centers in recent years, first Google, followed by Microsoft and Facebook. Experts cite Iowa’s low energy costs — and rich incentives — for attracting the tech companies.

At IPP, our research has covered many areas of public policy, but two strong themes that have emerged are these:

  • Clean renewable energy such as wind and solar can enhance economic growth in our state; and
  • Economic development “incentives” must be designed to pay long-run dividends to the state to truly offer a public benefit.

Iowa won the bidding war with Nebraska not because we gave away more taxes but because we had more wind power. Facebook had a deal with environmental organizations to stop being a dirty energy hog so they came to a place where they could easily get wind power. And all that wind power in Iowa (24.5 percent of the total electricity generated last year was from wind) has not caused our overall electric rates to spike. So other companies like the Iowa environment as well. Clean energy seems to get us more high quality jobs.

Most of the “rich incentives” in Iowa’s economic development playbook do not incentivize anything that would not happen anyway because they are focused on tax breaks for companies that pay little or no taxes in the state to begin with, and in any event are such a small part of business costs that they have little bearing on location decisions.

But clean energy does matter. The promise of renewable energy, such as wind power, rests with the recognition that as we invest in new energy sources to meet demand of the future, we can do so in a way that does not harm our environment and keeps energy costs down over the long term.

In this case, Facebook is following a course, beyond giveaways, that more companies should consider when thinking about where to locate or keep operations.

IPP-osterberg-75 Posted by David Osterberg, Founding Director