Data centers (occasionally called “server farms”) are facilities housing computers that store and process back-end information for the web. Their importance exploded with the rise of cloud computing. Their proliferation has prompted more than two dozen states to adopt subsidy programs designed to attract data center investments.
Most states subsidize data centers by offering their owners sales and use tax exemptions on purchases of hardware and software, as well as by significantly lowering the electricity these facilities use in abundance. Those exemptions can last for as long as 40 years and, especially in the case of electric power, can provide large corporations like Google, Facebook, Amazon and Microsoft with substantial savings.
Data centers also enjoy full or partial exemptions from property taxes through state-, local- or place-based (think Enterprise Zones) subsidy programs. Data center owners can also negotiate cheaper energy rates directly with utility companies.
Those subsidies can be costly. Iowa residents pay over $120 million annually for their program, Virginia residents over $100 million. The subsidy cost per job can also be excessive. A Good Jobs First study calculated an average cost per job of $2 million at large data centers.
Despite proliferation of those programs across the country, subsidies play almost no role in data center site location decisions. The main factors include:
- Cheap electricity: to operate and cool computers, data centers consume a lot of energy, and thus cheap power is one if not the most important factor in data center site selection.
- Renewable energy: big tech companies have publicly set goals to power their data centers with clean energy, so they look for locations with access to solar, wind, and hydro power. Some companies build their own solar panel farms next to data centers for their own use.
- Safety: those projects are located away from locations prone to natural disasters (tornado, hurricane, fire) and human-caused activity (proximity to power plants, airports).
- Proximity to customers and infrastructure: data centers need to be relatively close to customers to optimize response time, and access to fiber optics is essential.
- Climate: Data center owners also prefer colder climates that offer free cooling.
The transparency of these subsidies is poor. Out of 16 data center programs included in Good Jobs First’s 2022 Financial Exposure study, only seven were transparent. Those that were disclosed were missing subsidy payment, job creation, and wage data. Even finding the annual cost of the programs can be challenging; six out of the 16 programs in the study had no easily available costs. On top of this, large tech companies have pushed state and localities into signing non-disclosure agreements, or NDAs, that prevent public officials from disclosing any information about companies during the negotiation process.
Big tech giants like Facebook, Apple, Microsoft, or Google tend to build massive data centers for their own use. Other companies, like Switch and Equinix, build what are known as co-location data centers, which rent space to other companies. Amazon is also a major player in the industry through its Amazon Web Services, or AWS, which both stores Amazon’s data and sells capacity to other companies. AWS also receives billions in federal government contracts.
Data centers require large amounts of capital investment, but, unlike manufacturing projects, they create few jobs. On average, the projects create just 30 to 50 permanent positions, while larger facilities may employ up to 200 people. The quality of those jobs is uneven. Google technicians, for example, tend to be hired through specialized temp agencies, and for a limited time only.
Besides electricity and water, data centers buy very little from local communities, so their economic impact on a region is limited. They do create a lot of community concerns, especially related to water use: one way to cool data centers is by running cold water through them. Access to clean water has been a controversial issue as communities fear their access to drinkable water might be affected.