Oklahoma lawmakers tried to rein in a business tax break that has cost the state hundreds of millions of dollars, but Google can still reap benefits for years to come thanks to an exception written into state law for its sprawling operations in rural Oklahoma. One paragraph tucked into state legislation enacted in 2021 granted Google tax breaks for another 15 years over concerns the company would move servers and other resources worth billions of dollars out of Oklahoma.
The Google data center at MidAmerica Industrial Park in Pryor is the company’s second-largest in the world. And over the past decade, Oklahoma has picked up the tab for more than $239 million in ad valorem taxes on the company’s real estate and other property at the Mayes County facility. That’s on top of $113.9 million in income tax credits Google has also claimed in Oklahoma since 2017 through a different incentive program that also rewards companies for creating jobs and investing in the state.
Google received more than $45.9 million in property tax exemptions for the Mayes County facility in 2021 alone, making it the largest beneficiary of Oklahoma’s ad valorem tax reimbursement program. The incentive allows tax exemptions on real estate and other property for some new or expanding businesses for five years. The state of Oklahoma is supposed to reimburse counties for the lost property tax revenue to fund local schools through a pot of money funded by personal and corporate income taxes.
But income tax revenue has not kept pace as costs from the incentive program have swelled, creating a growing financial burden for the state. Google’s property tax exemptions in Mayes County made up about a third of the total incentive program’s cost of $138.6 million in Oklahoma last year. And Google’s Mayes County facility accounted for more than 97% of the state’s tax exemptions for data centers between 2016 and 2020, according to one state consultant’s report.
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Seeking to contain costs, the Oklahoma Legislature passed Senate Bill 609 in 2021, which eliminated data centers from the incentive program. Moving forward, Google must pay property taxes on new development. But the state will continue to cover Google’s ad valorem taxes for five years on new computer servers and other equipment the company buys for its Mayes County facilities that already had tax exemptions in place until 2036.
In response to written questions from The Frontier, Andrew Silvestri, Google’s head of policy and public affairs in Oklahoma, said the company has no plans to leave Mayes County. But he also said that Google makes decisions on where to invest at its 14 data centers across the United States based in part on available business incentives.
“Competitive local economic development programs play a role when deciding where to make the investments needed to continue to power the digital tools and services that help people and businesses thrive,” Silvestri said in a statement.
Oklahoma property taxes are not a significant expense for a company the size of Google and the hundreds of millions of dollars the state has given in subsidies are “a drop in the bucket,” said Kasia Tarczynska, senior research analyst for the business subsidy watchdog Good Jobs First.
Google’s parent corporation, Alphabet Inc., is one of the largest publicly-traded companies in the world, with a market capitalization of more than $1.5 trillion as of early June 2022. Alphabet’s revenues exceeded $257.6 billion last year.
Google and other companies that operate data centers first weigh factors such as abundant land and affordable utilities when deciding where to locate, Tarczynska said.
Even if incentives don’t factor much into location decisions, companies expect state and local governments to offer millions of dollars in tax breaks and other benefits as a matter of course, she said.
“Unfortunately, subsidies have been on books for decades now and companies like getting them,” Tarczynska said. “In the end, it’s not savings, but it's more money for their shareholders.” Over the past decade, schools in the small town of Pryor have become increasingly dependent on Google’s sizable property values in Mayes County.
Big tech money for local economies
Google has invested $4.4 billion in the county to date, according to figures provided by the company.
As a result, property values within the Pryor school district have swelled by about 957% since 2009. Pryor schools no longer receive any aid money for students from the Oklahoma State Department of Education’s funding formula because property values in the district are so high.
Thanks to Google’s boost to property values, Pryor schools have been able to hire more teachers and pay for free after-school programs including karate and dance classes and a BMX bike club, said Lisa Muller, district superintendent.
Since 2009, the district has also passed a series of bonds to renovate schools and build a new softball and baseball complex and other facilities based on Google’s property valuations. But the district’s ability to pay those bonds in the future depends on the company’s continued operations and investment in the county.
When legislation threatened to cut data centers out of the ad valorem exemption program, it also cast a cloud over the financial future of Pryor Public Schools, said Jason Johnson, chief financial officer for the district. If Oklahoma changed the law, Google could decide to move its servers to another state with better incentives, reducing property valuations in the school district.
“Google made clear that that meant they would be leaving as soon as it was affordable for them to do so,” Johnson said. If that happened, the school district would default on its bonds within a few years, Johnson said.
“It would be pretty catastrophic for us,” he said.
Tax incentives for data centers bite back
While Pryor schools have thrived over the past decade, the Oklahoma Legislature has had to divert a sizable chunk of supplemental state appropriations each year to cover the cost of the ad valorem reimbursement program. In 2020 alone, the Legislature had to commit $109 million in additional funds to help replace property tax revenues to counties for the program.
Oklahoma voters first approved a five-year ad valorem tax break for some businesses in 1985, as a way to cultivate manufacturing in the state and create new jobs, but costs have ballooned after the state expanded the exemption over the years to cover everything from wind farms to retail distribution centers. The state’s consultant in 2020 found that the program creates a net economic benefit for the state by sparking new investment. But Oklahoma hasn’t seen significant growth in job creation to correspond with growing costs since 2001, the report found.
Oklahoma also hasn’t generated enough revenue from dedicated personal and corporate income taxes to cover the cost of the program since 2003.
Between the 2016 and 2020 fiscal years, the state’s cost for reimbursement payments to counties more than doubled, reaching $161.2 million in 2020 — about 2.5% of Oklahoma’s general revenue budget for 2020.
State lawmakers passed a bill in 2015 to phase out wind farms from the program, but Oklahoma’s cost for tax reimbursements haven’t significantly decreased, in part because of Google’s massive investment in the state.
The state consultant projected in 2020 that Oklahoma would pay more than $422 million in property tax reimbursements for all companies between 2021 and 2024, even if no new facilities were added to the program.
The Oklahoma Legislature appropriated another $95.2 million in supplemental funding in May to help cover the cost of ad valorem tax reimbursements for companies in 2021.
State lawmakers passed legislation in 2020 to repeal the ad valorem reimbursement program. One of the bill’s authors, House Appropriations and Budget Chairman Rep. Kevin Wallace, R-Wellston, told the news outlet NonDoc that the incentive program was a drain on state finances and mentioned Google as one example of what he called “corporate county welfare.” But Gov. Kevin Stitt vetoed the bill, saying it would eliminate a vital tool for the state to recruit new business.
“I want the world to know Oklahoma is open for business,” Stitt said in a statement announcing his veto.
Senate Appropriations Chairman Roger Thompson, R-Okemah, said in a recent interview with The Frontier that he supported Stitt’s veto because he and other lawmakers didn’t know what they were voting on because of last-minute changes to the bill.
Thompson said he knows the state’s costs from the ad valorem reimbursement program need to be controlled, but he also doesn't want to eliminate incentives that Oklahoma has already promised to companies. “We made a deal. Let’s honor our deal,” Thompson said. “I make bad deals in my business from time to time. I have to honor them.”
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At the request of the Oklahoma Department of Commerce, state lawmakers introduced a different bill with bipartisan support in 2021 that proposed several reforms.
“I can say that the purpose of the bill was to limit costs to the state and create some certainty to the costs of the program — not to provide more exemptions,” Amy Blackburn, a spokeswoman for the Oklahoma Department of Commerce said in a written response to The Frontier.
Google’s billions of dollars in investment in real estate, servers, and other equipment were a big driver of uncertain future costs, said Rep. Kyle Hilbert, R-Bristow, one of the 2021 bill’s authors.
Each time Google purchases new equipment for the Mayes County data center, the company can claim a new five-year tax exemption, perpetually re-qualifying the company for the incentive program and creating accumulating costs for the state, he said.
“We want to be open for business when these companies come knocking, but at the same time, we don't want to make the state go bankrupt in the process,” Hilbert said.
An amendment Hillbert added to SB 609 eliminated future exemptions for data centers, but allowed Google to keep receiving state-subsidized, five-year ad valorem tax breaks on new equipment at its existing facilities for an additional 15 years. He believes it was a good compromise to get the bill passed.
“At the end of the day, we got legislation across the finish line that seemed like everybody could live with,” Hilbert said.
Moving forward, local governments can offer data centers a break on ad valorem taxes by creating tax increment financing districts with no reimbursements from the state.
Extending the incentive for Google was “only appropriate” because the company had made business decisions based in part on the promise that the state would provide the tax break, said David Stewart, administrator for MidAmerica Industrial Park in Pryor.
Stewart believes any future investment Google makes in Pryor could have been swayed by the added cost of property taxes. “I don't think it was an ultimatum, but I think it was clear that that was part of their business decisions,” Stewart said.
Google woos Oklahoma legislature
In May, Google hosted a reception for press and politicians to announce a $75-million expansion in Mayes County this year, which the company says won’t qualify for new ad valorem tax reimbursements. The event featured a mechanical bull and frosted sugar cookies painted in bright Google colors and shaped like the state of Oklahoma.
Pryor Mayor Larry Lees commended Google for funding science and math programs for students and other contributions to the community, including providing free public wireless internet for the city’s downtown. Representatives for Google said the company has created more than 800 jobs to date in Pryor. That figure includes full-time positions and with external suppliers ranging from computer technician and engineering jobs to work in food service, security and maintenance.
Stitt also spoke, praising Google’s investment in the state as an example of his business-friendly policies but he also acknowledged that other factors played a role in attracting the company.
“When we ask Google what brought them to Oklahoma in the first place, two things rose to the top — available power, clean power… and also water,” Stitt told the audience.