Will Project Delays Kill Data Center Incentives?

Decisions by Microsoft (MSFT) and Google (GOOG) to delay huge data center projects seem prudent, but are a bitter pill for local officials that offered incentive packages to attract high-tech jobs.

Rich Miller

January 26, 2009

3 Min Read
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Happier days at the press conference announcing the Microsoft West Des Moines data center project. Pictured from left: U.S. Senator Chuck Grassley, State Senator Mike Gronstal, Microsoft General Manager Michael Manos and Iowa Governor Chet Culver.

In the big-picture analysis, the decisions by Google and Microsoft to delay major data center projects seem prudent. The projects cost $550 million to $600 million apiece, and neither company appears likely to run out of data center capacity anytime soon.

But state and local officials in Oklahoma and Iowa are focused on a smaller picture. The postponements of Google's project in Pryor, Oklahoma and Microsoft's facility in West Des Moines, Iowa dash any hopes that huge data center projects will create jobs in the midst of the economic crisis. Both states offered significant tax incentive packages to attract these companies, with expectations of a payoff in high-tech jobs.

Iowa Gov. Chet Culver "is obviously disappointed by the news that Microsoft has decided to delay their plans for a new data center in West Des Moines," Culver's office said in a statement Friday. "This is just one more sign that no one is immune from the economic recession gripping our nation. The Governor remains hopeful that conditions will improve and Microsoft will begin construction on their new facility soon."

The West Des Moines and Pryor projects are among a number of data center projects that may not deliver jobs on the scope and timetable envisioned by their state and local patrons. Here's a look at some of these projects:

  • Early last year Iowa legislators passed an incentive package offering Microsoft a six-year exemption of state sales and use taxes on purchases of computers, equipment and electricity for “a Web portal business with an investment of at least $200 million in Iowa.” A similar package was offered to Google for its Council Bluffs data center.

  • In Oklahoma, Google was offered a state sales tax exemptions and local property tax exemptions. The company also benefited from an unusual new law allowing municipal power companies to not publish power usage by their largest industrial customers.

  • Last month Google told the state of North Carolina that it won’t meet the job creation criteria for a $4.7 million state grant for its data center project in Lenoir, N.C. The grant required the company to create 200 jobs in four years, but Google has apparently slowed the pace of its project.

  • In Texas, Rackspace said in November it would trim $40 million from its planned capital spending on data centers in 2008 because it now expects to be able to buy or lease a facility. Rackspace had considered building a data center within its new headquarters campus at the former Windsor Park Mall. The state of Texas supplied a key sweetener for the project in the form of a $22 million grant from the Texas Enterprise Fund, which requires Rackspace to grow to 4,000 employees.

Will states continue to offer aggressive tax incentives to attract the big guns in the data center arms race? With the current state of the capital markets and construction slowdowns by Microsoft and Google, states lusting after data center projects will have plenty of time to track the progress of postponed projects and evaluate whether the math and politics of data center projects still add up to a win.

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