True Economic Impact of Data Center Builds Uncertain

Are data centers good for local economies?
Are data centers good for local economies?

Data centers don’t create much employment in comparison to development projects of other types. A billion dollar investment in a manufacturing facility or office space would be expected to provide a multiple of the jobs created by a similar investment in a data center. It doesn’t take more than a couple of dozen people to operate a major data center.

But that doesn’t stop states and municipalities from battling for their arrival. Utah and New Mexico are jostling for a Facebook data center, with all the appropriate legislation, multi-billion dollar bond issues, and power rate negotiations. A decision is expected shortly after all necessary approvals are granted in each state, with an August 31 hearing in New Mexico appearing to be the last event on the calendar before Facebook makes their announcement.

Meanwhile, Iowans are lining up the incentives for a secretive $2+ billion project in West Des Moines, which is already the site of $2.1 billion in Microsoft data center investment. Iowa has aggressively courted tech enterprises in recent years for data center development. Hawkeye State officials granted $20 million in sales tax rebates to Microsoft in exchange for pledging to create at least 84 full time jobs.    Facebook received $18 million in incentives from the state for a data center in Altoona that created 31 full time jobs.

The level of public investment seems high for the jobs created, and it is. So why do the local government officials go to such lengths to attract data center facilities?

There are several reasons:

  • Iowa government officials believe that a large data center in an undeveloped area will create a path for others to invest in that area that has been earmarked for development, although that concept hasn’t been fully proven yet with other Iowa projects.
  • Sales tax rebates may keep money from finding its way to the state government, but some of the purchases that are not being taxed are circulating money in the local economy that wouldn’t otherwise be there.
  • Building a data center is a boon to the local construction industry, as the cooling, electrical, and telecommunications infrastructure are more complex than the typical industrial build. With builders and developers typically very involved in local politics support from public officials can be expected.
  • A data center provides a major customer for local utilities, enabling infrastructure investment and enhancement.

So what is the Impact? Studies, ordinarily funded by real estate interests, or the data center end users themselves (including here and here), conclude that the economic impact of a data center, including employment, is more than meets the eye. It would be illuminating to compare economic studies conducted by those without skin in the game.

The focus on economic development is ordinarily on huge tech enterprises building private data centers. Anecdotally, multi-tenant data centers seem to generate more economic activity, as tenants typically will want their own people working on their infrastructure, supporting a wider range of employment as well as a greater diversity of local contractors due to the different entities involved in purchasing. A vibrant colocation facility also provides additional technology solutions options for local companies that do not necessarily benefit from a large Facebook or Microsoft data center in their environment.

Data center builds are a good thing. But just how significant an economic impact they have isn’t fully clear.