Big Tech Eyes Billions in Public Subsidies for AI, Cloud Computing

November 27, 2023

The letters AI over a computer-looking set of data center servers and computers
Source: Getty Images

The ouster of OpenAI founder Sam Altman, followed by his return a few days later, drew worldwide attention. OpenAI created ChatGPT based on the premise that artificial intelligence “benefits all humanity,” rather than a race to make the most profit, and Altman is seen as the face of the technology upending the world.

What’s been much less public is the quiet, secretive process large tech companies are using to extract huge sums of public money to fund the computing power and storage AI depends on, which will come from data centers.

The companies vying for the biggest handouts will inevitably be the same ones that have already benefited extensively from taxpayer subsidies as they continue building out that infrastructure.

Many companies own and operate data centers, but a few dominate the industry: Amazon and its AWS subsidiary; Microsoft, which owns 49% of OpenAI; Alphabet, Google’s corporate parent; and Meta, Facebook and Instagram’s parent company.

The subsidies these global giants extract take various forms.

Let’s start with sales tax breaks. Data centers are highly capital intensive, meaning companies must spend a lot of money to build and equip the facilities. In more than 20 states, companies enjoy sales and use tax exemptions, which allow them for tax-free purchases of equipment and electricity. Virginia’s sales tax exemptions cost residents $136 million in FY 2022, for example.

There are also property tax breaks. In Oregon alone, localities provided data center owners with $152 million in FY 2023 in property tax abatements via the Enterprise Zone program. Amazon is already a big beneficiary of this particular program, but earlier this year, the company was approved for an additional $1 billion in property tax breaks. Even worse, one of the agencies that had to approve the deal gave the public only one day’s notice before the final vote.

Often, companies combine the two subsidies. In Ohio, Amazon’s $3.5 billion investment in New Albany comes with a 30-year local property tax abatement of undisclosed value. This means that a whole generation of students will graduate before Amazon’s data center yields any significant financial benefit to local school districts. Amazon will most likely also benefit from the state’s sales and use tax exemptions.

Microsoft is getting its own deal in Mount Pleasant, Wisconsin, where it is investing over $1 billion at the site of the now-infamous, failed Foxconn project (celebrated for claims of creating 13,000 high-tech and manufacturing jobs that never materialized). The company will benefit from sales and use tax exemptions through a new data center subsidy created by the state in June, but the public has no idea how big the break will be.

We know, though, that Microsoft is also getting $50 million in tax rebates from the town. On top of that, Microsoft is benefiting from over $1 billion the state and localities spent upgrading the site for Foxconn.

Another way companies get public money is through electricity discounts, often the most opaque of all the subsidy types. These steep discounts often lead to other ratepayers making up the difference.

Meta, for example, is getting property tax abatements and electricity discounts for its $1 billion investment in Minnesota – but it won’t tell taxpayers the cost of the power subsidy. Meanwhile in Nebraska, Google is investing $1.2 billion in a few locations and will almost surely receive state subsidies. To meet the demands of the growing data center industry, the Omaha Public Power District is investing over $2 billion in infrastructure and plans to pay for it by raising customer rates, according to an OPPD official.

The question becomes what we, taxpayers who subsidize huge company operations, get for our generosity.

Let’s start with jobs created by data centers – or rather, the lack of them.

While data centers can create a significant number of temporary construction jobs, permanent job creation is limited. The cost-per-job is often high: For instance, data center owners in Illinois got approximately $1.4 million in tax breaks for every single job created. This makes it almost impossible for the state to recoup lost revenue because a person in a subsidized job will almost never generate $1.4 million in new taxes over their working life.

And then there are the climate implications.

Data centers use massive amounts of energy to power the thousands of computers running inside them. One estimate finds that a large data center consumes as much energy as 80,000 houses – as big as an entire city. Powering AI will require even more energy. Despite companies’ promises to pivot to renewable energy, these projects inevitably increase pollution, and they emit more greenhouse gas than the airline industry, according to a MIT report.

In Oregon, a hub for large data centers, lawmakers tried to require all data center companies to use renewable energy,  but were ultimately unsuccessful: Amazon paid lobbyists $93,000 over three months to kill the proposed requirements.

And there is the lack of transparency, as you can see from just a sample of the deals we’ve mentioned.

In our 2022 analysis of 16 state-level data centers subsidy programs, only seven had recipient level transparency. That means in the other nine states, we don’t even know the names of companies getting huge public subsidies.

And when there is transparency, it is limited or confusing. Instead of Google, we see XXVI Holdings or Design LLC; instead of Meta we see Raven Northbrook. This distorts the democratic decision-making process. In Rosemount, Wisconsin, the city council granted a $20 million tax abatement to a company called Jimnist. Only after the deal was approved did the city officials learn the data center was owned by Meta.

We suggest several remedies for these issues. First, profitable, global corporations must pay the taxes they owe, money which contributes to public systems that, for example, pay to expand broadband to communities lacking it.

And these projects must be built in a way that protects the planet and saves natural resources. Requiring renewable energy is a start.

Importantly, any data center subsidy must be approved through a transparent process that ensures decision-makers have access to all the information they need – including the ultimate parent company – before a public vote. The public should be able to see any draft deal at least 60 days before it is approved.

In the upcoming year, we expect to see many more data center investments and more secretive subsidy deals, driven in large part by AI infrastructure investments. Data Bridge Market Research expects such spending, which includes data centers, to reach nearly $423 billion by 2029. Companies surely plan to ask for taxpayer support to offset those costs.

To go with those, we hope to see more local communities standing up to big tech companies and more public officials voicing skepticism about the promised economic benefits of these projects, and for residents to weigh in before any deals are finalized.