June 5, 2013
“Our new Constitution is now established, and has an appearance the promises permanency; but in this world nothing can be said to be certain, except death and taxes”.
Benjamin Franklin, 1789
In case you haven’t noticed, state governments all over the country have discovered data centers. And guess what, they all want them. My own state of Texas just passed a law providing tax breaks for companies that locate large data centers within it boundaries. This is, of course, a good thing. However, the National Security Agency’s experience with their Utah based data center should be viewed as a cautionary tale for those making their next data center location decision.
After deciding to take advantage of Utah’s efforts to make itself the “prettiest girl at the prom” via a series of tax abatements, our good friends at one of the country’s leading spy shops found that what the large print giveth, the small print taketh away as the state subsequently passed a law levying a 6% tax on their energy usage. Naturally, this is going to cost them a few million extra dollars more on an annual basis than they originally anticipated. Well, color them surprised—I’ll let you draw your own conclusions about how this reflects on our country’s intelligence community. Henry Davis, NSA Director of Institutions and Logistics, summed things up when he said that the new law, “runs counter to what we expected”.
Lest we forget, government, at all levels, is feeling itself in just a wee bit of a pinch, and in their insatiable desire for more revenue (that would be taxes to you and me), too much is never enough. So what does this mean for the data center provider seeking to reap the advantages of the growing number of “come hither” tax incentives being proffered up by states and local municipalities across the lower 48? So far, Alaska and Hawaii haven’t decided to jump into the fray, but in this current feeding frenzy can the offer of a dedicated island on the part of our 50th state be far behind? As in any real estate transaction, doing your homework is the key to making sure your 25-year investment that seemed too good to be true doesn’t turn out to be exactly that.
First, examine the long-term history of the location that you are contemplating for the home of your next facility. How have the administered similar offerings over the years? In other words, do early incentives subsequently wind up being off-set by other rate or tax increases later? Deciding to locate your new data center in a locale that greets you with all the enthusiasm of the newly converted, but has a history of making up for its initial largesse later, can have long term financial implications for your business.
Pay attention to the atmosphere surrounding the negotiations surrounding your would be benefactor’s decision to entice you into their warm embrace. Read what the papers and blogs are saying. Does the majority of opinion feel that it is a good deal or is your new site being viewed by the masses with the same level of enthusiasm as if you were planning to erect a leper colony on Main Street? If your prospective reception leans toward the latter somebody is ultimately going to pay, and more likely than not, that’s going to be you.
Remember that all though more and more localities want one, the economic impact, like potential “trickle down” effects for example, aren’t necessarily well-understood by politicians or their constituents. A data center isn’t a manufacturing facility, so the overall lift to a community may not turn out to be as substantial as anticipated. This disjoint between perception and reality can potentially lead to a “desire to make up the difference” on the part of the same people who asked for your business originally.
Economic incentives can have an important impact on your final data center location decision, but they should be just one factor in your analysis. Weighing your options based on your long term investment in capital and people can help alleviate the potential financial ramifications of governmental policy after the “thrill is gone”. Governments may put off paying on their obligations indefinitely but they always want their money now. Just remember, legislative love may be fleeting but as Franklin indicated, taxes are forever.