Northern Virginia, Dallas, Colorado and Chicago are data center hot spots. These markets have seen an explosion of colocation and data center space over the past 12 months. Northern Virginia alone added 113MW of commissioned power in 2016 has already identified 43 additional sites designated for new data center construction. These markets are growing due to a variety of factors and incentives. Whether those are favorable tax conditions, low power costs or available land the real impact of these data center economies is on the long term benefits they bring to local communities.
Since 2009 the number of states offering tax incentives for new data center construction has grown from 8 to 27. According to this report, the main beneficiaries have been tech giants like Google, Facebook and Amazon who have collectively been awarded $2 Billion + in tax breaks for new data center builds.
Data Centers are a massive capital investment which is another driver of tax revenue. Spending on a new data center can be anywhere from $50 million to $1 billion on the higher end; Facebook’s new data center in Dallas came with a $750 million price tag. Depending on the state, these builds represent sales tax revenue on construction materials and equipment purchases as well as local income taxes from construction or permanent jobs.
Nowhere is this truer than in Northern Virginia which is home to 4.6 million SF in Data Center space, 616 MW of power and is the stomping ground for companies like Amazon, Dupont Fabros and Equinix.
Northern Virginia is somewhat unique as they actually provide sales tax exemption on any data center related equipment purchases. Most of their state revenue is driven through property tax – which by far the largest source of revenue for Virginia localities. The catch is that the new build has to be over $150 billion and employ 50 new jobs that pay one and half times the prevailing average wage in the locality. Since this went into effect in 2009 Northern Virginia has seen steady growth in their data center economy and, in 2014, reported $298.9 million is local and state tax revenue directly tied to data center activity.
According to the National Resources Defense Council (NRDC), data centers are one of the largest and fastest growing consumers of electricity in the United States. The environmental action group estimates that U.S. data centers consumed 91 billion kilowatt-hours of electricity in 2016, or enough electricity to power all the households in New York City twice over.
As a result, moving to sustainable energy is a top priority in the data center industry with the initiative being led by tech and colocation giants like Switch, Google, Apple and Amazon. These companies have driven new energy consumption models at a state by state level which makes it easier to purchase green energy. By leveraging long-term commitments to purchase renewable energy there is now a real business case for local communities to invest in wind and solar facilities.
For example, in Virginia, Amazon was able to negotiate a new green tariff called Schedule MBR which has enabled it to form 5 new solar farm agreements collectively generating 180MW hour of new solar power. The benefit for the community is two-fold:
- Schedule MBR creates a mechanism for the sale of solar power to meet other corporate demand.
- Significant long-term revenue for a local green energy provider.
These types of agreements have been replicated across North America and have enabled corporations to access renewable energy in an easier, more cost-effective manner.
Aside from tax revenue and renewable energy initiatives high profile data centers also tend to attract other high tech and colocation companies. A great example of this is Facebook’s decision to build a $250 million-dollar facility in Los Lunas, New Mexico. Chair of the Albuquerque Economic Development (AED) committee calls this a “potential economic lottery ticket” as it has piqued the curiosity of investors and businesses who might not have considered New Mexico for tech. In this article he goes on to explain how six new economic projects are on Albuquerque’s radar that were “clearly tied to Facebook”. The arrival of tech giants is a great indicator of market strength and helps to attract highly skilled workers who feed the talent pipeline for other fast-growing industries.
The impacts of data center development on local communities are real and long lasting. Through new revenue streams, renewable energy initiatives and economic development the data center economy continues to grow. Here at BioConnect we are uniquely focused on driving innovation in biometric security for our enterprise and colocation data center customers. We help design, deploy and scale biometric solutions for perimeter and cabinet level access control. I’m excited to be part of such a fast-moving industry and can’t wait to see where it takes us.