The Economic Impact of A Data Center
March 15th, 2007 By: Rich Miller
Much of the recent news coverage of Google’s decision to locate a $600 million data center in Lenoir, N.C. has focused on the political debate about the lucrative economic package that helped lure Google to the state. Today’s New York Times takes a closer look at the deal, exploring what it will mean for the town of Lenoir and its residents. This street-level analysis of the impact of the new Google facility site provides a reminder of why economic development officials are now paying much closer attention to the data center site location process.
Lenoir is a town in the Appalachian foothills with an economy that has been dominated by the furniture industry, which has been hit hard by slumping sales and competition from China.
The need for jobs, economic diversification and good news is dire. Lenoir’s furniture industry has been decimated by overseas competition, and the transformation has been swift. The unemployment rate went from one of the state’s lowest, 2.4 percent, in 2000, to 6.9 percent last year, after peaking at 9.8 percent in 2003. Some 5,000 furniture jobs have been lost. Many workers in their 40s and 50s, who raised families and paid mortgages on factory salaries, have had to go back to school. … Google says it hopes laid-off furniture workers, most of whom never graduated from high school, will be among the 250 employees at two facilities on the 215-acre site, much of which was once a lumberyard.
Jobs are always the yardstick by which economic development projects are measured. As a result, it has often been difficult to quantify the impact of major data center projects, as these facilities typically house more servers than employees.
Since data centers have historically been located near major Internet traffic and business hubs like New York, Washington and Silicon Valley, the trend of building enormous server farms in relatively rural communities introduces new math into the economic development equation. The earliest testbed for the new paradigm is Quincy, Washington, where Microsoft, Yahoo and Sabey Corp. are all building large data centers. Microsoft’s new facility is scheduled to come on line later this month. But the economic impact of these new businesses is already being felt in the real estate market, according to Business Week:
Real estate prices are spiking around Quincy amid talk that the Net building boom is just getting started. “Some plots you could have had for $6,000, folks are asking $50,000 for now,” says Patric Connelly, one of the three town commissioners who inked the Microsoft and Yahoo deals. The land boom illustrates the point at which cyberspace intersects with terra firma.
The Times notes that Google’s Lenoir incentives have become controversial, with North Carolina newspapers documenting heavy-handed lobbying by Google. At the company’s request, the state legislature passed a law exempting some high-tech businesses from paying sales tax on electricity, and the city and county will forgive 100 percent of the company’s personal property taxes and 80 percent of its real estate taxes for up to 30 years. Critics say the incentive package adds up to $1.24 million for each job.
Will these jobs actually go to local residents? Or will the majority of the technical positions be filled by transplants from Research Triangle and other technology hubs? That remains to be seen, but it’s a good bet that Google is receiving resumes from all points of the compass.
As Google, Microsoft and Yahoo continue to expand their networks of server farms, these projects will be closely watched to assess how data center site location decisions are affecting these communities. This is an issue that goes beyond debates about whether Google is being “evil” in its dealings with local officials. Large companies, and especially large employers, have always been able to drive hard bargains and pit one state against another in the incentive sweepstakes. The effort to keep the process secret is another matter, and more likely to be the source of headaches for Google and other data center builders going forward. These deals have become front-page news, and that’s one trend that’s not likely to change anytime soon.