Comments Guidelines

All comments are pre-moderated. No spam, slurs, personal attacks, or foul language will be allowed.

Monday, May 11, 2015

Why subsidize data centers?

A number of authors (Good Jobs First, David Cay Johnston, me, and me, among others) have pointed out that data centers (aka server farms) in the United States create very few jobs, yet receive state and local government subsidies that routinely exceed $1 million per job. I'm sure you already know that numbers like those make me ill: the typical automobile assembly plant will receive $150,000 or so per job, and require all sorts of component facilities to feed it -- though, sadly, economic development officials often given incentives to the supplier plants as well.

So why $1 million or more per job? Data centers pay reasonably well, and the biggest are connected to famous tech names like Apple, Google, and Facebook, but it seems to me that it's hard to get around the facts that there just aren't that many jobs, and they don't require an army of supplier facilities bringing indirect jobs.

But surely the competition for jobs is so steep that governments have no choice but to subsidize them? Actually, no. Aside from the fact that $1 million per job probably gives away more than the value of the investment to the government, my investigations have turned up multiple examples of companies building data centers without incentives.

One I've mentioned here before: American Express in 2010 built a $400 million data center in Greensboro, North Carolina, without any incentives at all. The leading explanation has been that Amex had already decided it was going to close a 1900-job call center in Greensboro (announced in 2011), a move it knew would trigger clawbacks of any incentives on the 50-150 job data center -- so it didn't bother seeking subsidies. Did I mention that North Carolina has cheap electricity?

More recently, I have found four Google data centers that opened or expanded without incentives in the last few years. New and expanded facilities in the Netherlands, Ireland, Finland, and Belgium all take advantage of cooler temperatures to reduce their electricity use. While Google did not respond to my email asking whether it received subsidies for those facilities, and IDA Ireland similarly was unresponsive, the Netherlands Foreign Investment Agency did respond with a confirmation that it had provided no "state aid" (EU-speak for subsidies) to the brand-new $773 million, 150-job data center opening in Groningen province in 2017. In addition, a search of the EU's Competition Directorate case database did not reveal any Google state aid cases for data centers. Thus, it appears that none of these cases received incentives.

So why did Google demand over $140 million (present value) in subsidies from North Carolina back in 2007? I think we're looking at the "usual suspect" once again, rent-seeking. Of course, North Carolina couldn't foresee the Amex no-incentive deal that didn't happen until 2010, but now that we can see how Google and American Express do business when they have to, it's time economic development officials around the country learned to "just say no" on data centers.

Cross-posted at Angry Bear.


  1. The Iowa Economic Development Authority Board approved a $19.8 million sales and use-tax refund for a Google data center expansion project. Google was also interested in taking advantage of Iowa's wind power program. Across the river here in Nebraska, Woodmen of the World has demanded some tax breaks or insists it will take its insurance business elsewhere.

    1. Thanks for the info. The Woodmen of the World shakedown is way too common. Beyond transparency, finding a way to stop subsidized relocations (which would remove the incentive for job blackmail) is probably the first thing it will be politically viable to tackle. It is just so obvious that it generates no net benefits when a company moves like that.