Supporters of the Michigan tax incentives counter that the tax breaks are essential to attract the spending and jobs of big technology firms, such as Microsoft and Google, and they say the incentives contain some environmental safeguards.
Data centers hold interconnected networks of computers that store and manage data for internet and other services, and companies are building more of them to meet growing demand for computer and data services. Microsoft boasts on its website that its average data center provides 300 to 400 jobs annually, but it doesn't share pay rates for its employees.
While the size of the data centers varies, some can be huge. Mountain View, Calif.-based Google plans to build a $1 billion data center campus in Kansas City, Mo., and a $576 million data center project in Cedar Rapids, Iowa.
"They’re huge electric users and water users, that’s true, undoubtedly," said state Rep. Joey Andrews, a St. Joseph Democrat who helped introduce the legislation. "But this is also an industry where there’s no stopping it.
"It’s not like Ohio getting them changes the burden on electric and water usage.”
But every click, download and video chat powered by a data center requires resources, namely electricity and water. Those needs can be substantial, warned Sean McBrearty, Michigan legislative and policy director for Clean Water Action, who said a large data center that used cheap but water-intensive evaporative cooling could use upwards of 1 million gallons of water per day. Instead of offering tax incentives, he said lawmakers should require data centers be powered by renewable energy they generate and be energy and water efficient.
"That is a huge problem for the state of Michigan, that we would be giving away our water to turn profits for more corporations," McBrearty said.
The legislation would create a new sales and use tax exemption for "enterprise data centers," which would have to meet investment and job creation requirements to qualify for the exemptions. The legislation is meant to attract sprawling data centers where developers are investing a minimum of $250 million. The centers also would need to create at least 30 jobs with wages equal to or above 150% of the regional median wage.
The bills also would extend a 2015 sales and use tax exemption for qualified data centers from 2035 to 2050, or longer if located on a brownfield or former power plant site. That 2015 law currently serves as a carveout for a Grand Rapids facility.
During the past week, the Senate passed a final version of the legislation through the upper chamber. The two bills will head next to the House for final passage.
Data center development is expected to surge as internet use and artificial intelligence capabilities increase. In 2021, the U.S. International Trade Commission's Office of Industries described an "exponential increase in data" underway across the globe, with the value of the data processing and storage market growing from $56 billion in 2020 to $90 billion by 2025.
Because data centers burn through servers, equipment and parts relatively quickly, companies often seek to locate in states where the sales and use tax has been lifted to make the endeavor more profitable, tax break supporters say.
McBrearty joined other environment, education and community advocates at a virtual press conference Tuesday to voice opposition to the tax incentive proposals, which McBrearty said would benefit "some of the largest, most profitable corporations in the world, like Microsoft and Google, who obviously do not need tax breaks."
Denise Keele, Michigan Climate Action director, said the electricity demands of data centers could throw off Michigan's climate goals, which include requiring utilities to power the grid entirely with clean energy by 2040.
"Data centers are one of the most intensive energy building types, consuming 10 to 50 times more the energy of a typical commercial office building," said Keele, quoting a figure reported by the U.S. Department of Energy's Center of Expertise for Energy Efficiency in Data Centers. "We're failing to take into account with these giveaways the impact of a demand in electricity surge that will occur from these data centers.”
Tax incentive plans advance
The flagship bill in the package, Senate Bill 237, passed through the Senate earlier this month 24-11, with three Democrats and eight Republicans voting against it. The upper chamber also voted 22-11 Thursday in favor of the companion bill, House Bill 4906, again with all but three Democrats in support.
In November, the House passed its version of the legislation, House Bills 4905 and 4906, with wider margins, 80-29, with all but one Democrat in support.
The bills would allow compliant data centers to keep their tax exemptions as late as 2050, or through 2065 in the case of a center located on a brownfield site. The legislation includes a sunset of Dec. 31, 2029, which would stop the state from issuing exemptions to additional centers unless the Legislature voted to extend the incentives.
The bills could cost Michigan upwards of $42.5 million in unrealized tax revenue through 2062 depending on how companies used the exemption, according to an analysis conducted in March by the nonpartisan Senate Fiscal Agency. The money would mostly affect the School Aid Fund, which finances K-12 public schools, but also impact the general fund and state taxes passed through to local municipalities.
While foes of the tax breaks have traditionally argued against handing out "corporate welfare" and criticized what they consider the low number of full-time jobs the centers create, environmentalists have mounted opposition as well in a bid to change minds among their normal Democratic allies, who control the House and Senate.
But in the Senate, Sen. Kevin Hertel argued the legislation contains safeguards to protect Michigan's resources, including energy efficiency certification mandates and a 2029 sunset after which the Legislature would have to decide whether to keep the program.
"It is the most environmentally friendly language of any state in the country that has done this so far, and 30 other states currently have this policy," said Hertel, D-St. Clair Shores.
Hertel sponsored Senate Bill 237, which includes language stating "the Legislature encourages" people claiming exemptions to take steps to mitigate environmental impacts, such as using renewable power, making facilities more energy efficient and conserving or reusing water.
Hertel said the tax break is necessary to attract large-scale data centers to the state. Like Andrews, Hertel argued the legislation would benefit communities in the long run by the property taxes paid on the data centers. While the data centers don't require many full-time employees to run, the personnel needed for construction and equipment replacement create indirect job growth, supporters noted.
"When you talk about the local property tax revenue that these enterprise data centers, the investments they bring to communities, they are massive, sometimes doubling the school budget if there's a millage there on the table," Hertel said.
Andrews noted a company has shown interest recently in building a data center in Benton Township; early estimates show huge increases in property tax revenue that would be "transformative" for local schools and the township, he claimed.
"Plus, you get a building like this — that’s Google, Meta, Microsoft — I think that sort of thing draws other industries in and of itself," Andrews said.
Democratic Sen. Rosemary Bayer voted against the measure, arguing the data centers are huge consumers of water and electricity. Michigan and particularly its abandoned industrial sites are good options for enterprise data centers, she said, but the legislation must contain more guardrails to rein in water and electricity use.
"As we seek to welcome these enterprises to Michigan, we want to make sure that we protect our most precious resources: Our water, our commitment to green energy and climate change mitigation and our people," said Bayer, D-West Bloomfield.
Grand Rapids data center paves way
In 2015, then-Gov. Rick Snyder signed bills creating sales and use tax exemptions for data centers, aimed mostly at luring a Las Vegas company, Switch, to Michigan.
Switch opened a data center in a pyramid-shaped building in Gaines Township outside Grand Rapids. Online, the company touts to customers "low or no taxes" thanks to the sales and use tax exemptions and local tax exemptions because it's located in a Renaissance Zone.
Company officials did not return requests for comment. Switch executives in 2015 promised 1,000 or more people would work at the data center. It is unclear how many jobs exist at the current Grand Rapids area site.
During the virtual press conference hosted by environmental groups, Pontiac City Council member Mikal Goodman criticized the proposed incentives as "business as usual" policies that benefit corporations using tax dollars that could otherwise be used to help struggling communities.
"When we are giving these large exemptions, these large tax breaks to these businesses, to these corporations, we are directly taking money out of our coffers to be able to do things," Goodman said.
The companies building and operating data centers already have incentives to build because of market demand and do not need further state tax incentives, he said.
Switch did not use close to the 1 million gallons per day figure McBrearty warned of, according to a report from the township's water and sewer department.
Switch's Gaines Township facility used more than 6.4 million gallons of water from Dec. 1, 2022, through Dec. 1, 2023, Gaines Township Water & Sewer Administrator Tracy Lawrence said in a letter. That use data only included water that was discharged into the sewer system, not water used for irrigation or outside of the building.
Consumers Energy spokesperson Brian Wheeler said the utility would not provide information about a specific customer's energy use, but said "data centers are traditionally energy-intensive customers."
The utility has electricity capacity to meet demand and is studying how to serve additional load from future data centers, he said.
Michigan Environmental Justice Coalition Policy Manager Andrea Pierce said the Legislature should consult with tribal governments before offering incentives to encourage more data centers to be built in Michigan.
"This data center proposal is another sad example of a pattern of disengagement that goes back many generations," said Pierce, a member of the Little Traverse Bay Bands of Odawa Indians, in a press release. "We all deserve a say in the decisions that affect our communities - and that's why we're demanding consultation with the 12 tribes of Michigan on this and other legislative actions likely to impact our water rights and, ultimately, our way of life, our culture and traditions."
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