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.

Beware the “business climateers”

Only if Iowa policy makers and the public ignore the reality on Iowa business taxes will these special interests get their way again.

Fisher-GradingPlacesIowa’s business lobby appears to be preparing a new assault on the ability of our state to provide public services.

It would be the latest in a long campaign, in which lobbyists target one tax at a time under a general — and inaccurate — message about taxes that we will not repeat here.

Suffice to say, Iowa taxes on business are low already. Many breaks provided to businesses are rarely reviewed in any meaningful way to make sure that taxpayers are getting value for those dollars spent, ostensibly, to encourage economic growth. Rarely can success be demonstrated.

The Iowa Taxpayers Association is holding a “policy summit” this week and promoting a new report by the Tax Foundation to recycle old arguments that are no better now than they have been for the last decade.

Fortunately in Iowa, we know where to turn to understand claims from the Tax Foundation, and that resource is Peter Fisher, our research director at the Iowa Policy Project. Fisher has written two books on the so-called “business climate” rankings by the Tax Foundation and others, and is a widely acknowledged authority on the faults in various measures of supposed “business climates” in the states.

Fisher, in this guest opinion in the Cedar Rapids Gazette, noted weaknesses in the Tax Foundation’s claims, not the least of which is that the anti-tax messages are not supported by the foundation’s own report. Fisher notes this about the Tax Foundation’s “State Business Tax Climate Index”:

It is a mish-mash of 118 tax features … weighted arbitrarily and combined into a single number for the index.

This number has no real meaning. It produces wacky results because it gives great weight to some minor tax features (such as the number of tax brackets) while leaving out completely two things that have a huge impact on corporate income taxes in Iowa: single sales factor, and federal deductibility.

This past spring, this Iowa Fiscal Partnership two-pager noted:

A variety of factors influence the decisions businesses make about whether they want to locate or expand within a given state. These factors include available infrastructure, the proximity to materials and customers, the skill of its workforce, and whether the state has good schools, roads, hospitals, and public safety. As we have shown elsewhere, state taxes play at best a minor role.

In Iowa, we constantly hear the same old argument … used to enact large tax cuts for commercial and industrial property this past year and continues to be an excuse used to justify giving away large tax credits to businesses throughout the state.

But this argument just isn’t true…

Whether we are looking at the entire range of taxes that fall on businesses or just the corporate income tax, the fact is that business taxes in Iowa are low.

Only if Iowa policy makers and the public ignore the reality on Iowa business taxes will these special interests get their way again.

Owen-2013-57 Posted by Mike Owen, Executive Director of the Iowa Policy Project

*View Peter Fisher’s reports for Good Jobs First on business climate rankings:

 

Bad research never gets good

When ALEC “analysis” is dissected, it becomes clear that its conclusions are faulty, and its policy prescriptions are no more valid.

It might be a stretch to say that good research never gets old — at some point you might need an update — but one thing is certain: Bad research never gets good.

Fisher-GradingPlacesIPP’s Peter Fisher is one of the nation’s experts on rankings of state business climates. In two reports published in the last two years by our colleagues at Good Jobs First, Fisher lays out irretrievable problems with the Rich States, Poor States analysis periodically offered by the American Legislative Exchange Council, or ALEC.

Fisher tested ALEC’s claims against the actual economic performance of states, finding that states following ALEC-favored policy did more poorly than other states.* He also found serious flaws of methodology, including comparisons of arbitrary states instead of all 50.

As Good Jobs First’s executive director, Greg LeRoy, wrote in the preface to the 2013 Grading Places report:

Indeed, the underlying frame of these studies — that there is such a thing as a state “business climate” that can be measured and rated — is nonsensical. The needs of different businesses and facilities vary far too widely. … Given these realities, “business climate” studies must be viewed for what they are: attempts by corporate sponsors to justify their demands for lower taxes and to gain public-sector help suppressing wages. …

To borrow Oscar Wilde’s witticism about cynics, these “business climate” studies know the cost of everything and the value of nothing.

In the case of ALEC, others are noticing. Michael Hiltzik of the Los Angeles Times has written twice in recent days about the ALEC problem, citing the work of both Fisher and Professor Menzie Chinn of the University of Wisconsin.

See these pieces by Hiltzik:

In the latter, Hiltzik notes a recent “response to the critics” by ALEC:

It’s a curious document that ends up proving the critics’ point. Take the point made by Chinn and by Peter S. Fisher of the Iowa Policy Project that the correlation between ALEC’s policies and economic growth is largely negative.

When the ALEC “analysis” is dissected, it becomes clear that its conclusions are faulty, and its policy prescriptions are no more valid. And it is good for Iowa to have Peter Fisher on the case.

Owen-2013-57  Posted by Mike Owen, IPP Executive Director

 

 

*View Peter Fisher’s reports for Good Jobs First on business climate rankings including the ALEC claims:

With ALEC, it’s not just ‘Who?’ but ‘What?’ and ‘Why?’

Regardless of who belongs to ALEC, the bigger issue is whether ALEC belongs at the public policy table.

Some Iowa legislative leaders are taking issue with claims that all Iowa legislators are members of the American Legislative Exchange Council (ALEC).

See these links:

All of this calls to mind the words of the great comedian Groucho Marx, who is widely quoted:

“I don’t want to belong to any club that will accept people like me as a member.”

Groucho presumably was never a member of ALEC — like many Iowa lawmakers now protesting claims of their inclusion. But regardless of who belongs to ALEC, the bigger issue is whether ALEC belongs at the public policy table.

Iowa Policy Project analysis has refuted the value of legislative initiatives promoted by ALEC, which is essentially a bill mill backed by corporate interests. IPP’s Peter Fisher and the national group Good Jobs First, in their 2012 report “Selling Snake Oil to the States,” showed that states following ALEC proposals were likely to show worse economic results than other states.

As Fisher noted at the time:

“We tested ALEC’s claims against actual economic results. We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.”

This recalls another quotation:

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

No, that is not the ALEC mission statement. Again, they are words widely attributed to Groucho Marx.

But if the shoe fits ….

Mike OwenPosted by Mike Owen, Executive Director

States should beware ALEC-brand snake oil

ALEC’s rankings are based on arguments and evidence that range from deeply flawed to nonexistent, consistently ignoring decades of peer-reviewed academic research.

Peter Fisher

Legislative sessions will be starting across the country after the first of the year, and with them, some very bad ideas for public policy.

The purveyor of many poor prescriptions is a very influential right-wing organization, the American Legislative Exchange Council, known as ALEC. The organization promotes policies to cut taxes and regulations in the disguise of promoting economic growth, but what they really do is reduce services, opportunity and accountability.

In short, the ALEC medicine show is a prescription for poor results, and states should beware.

Our new report, “Selling Snake Oil to the States,” examines ALEC’s proposals and the misinformed, primitive methodology behind the study that supports them. The new report, a joint project of the Iowa Policy Project in Iowa City and Good Jobs First in Washington, D.C., illustrates how ALEC’s prescriptions really offer stagnation and wage suppression.

In fact, we find that since ALEC first published its annual “Rich States, Poor States” study with its Economic Outlook Ranking in 2007, states that were rated better have actually done worse economically.

Find “Selling Snake Oil to the States” at http://www.goodjobsfirst.org/snakeoiltothestates.

We tested ALEC’s claims against actual economic results. We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.

ALEC’s rankings are based on arguments and evidence that range from deeply flawed to nonexistent, consistently ignoring decades of peer-reviewed academic research.

What we know from research is that the composition of a state’s economy — whether it has disproportionate shares of high-growth or low-growth industries — is a far better predictor of a state’s relative success over the past five years. Public policy makers need to stick to the basics and recognize that public services that benefit all employers.

Posted by Peter Fisher, Research Director