If you set out to design a facility that would offer the smallest possible economic benefit to the surrounding community, what would you do? You might start by making it a place where virtually nobody works on a full-time basis, so as not to generate income taxes or create more business for local restaurants, retailers or landlords. You would make it one that doesn’t have much by way of customer or supplier traffic, for the same reasons. You’d have it require few, if any, products or services from local vendors. You’d also maybe consider giving it a giant 24/7 appetite for energy to create stress on an electrical grid that wasn’t designed with that kind of demand in mind.
In other words, you’d have designed the modern data center.
Despite these issues, Gov. Glenn Youngkin and leaders in the General Assembly recently announced that Virginia will be expanding its “Mega Data Center Expansion Program” subsidies, headlined by potentially as much as $140 million in grants for new Amazon Web Services data centers. To put that price tag into perspective, that’s more than enough taxpayer dollars to cover the entire annual operating budget of Virginia’s Department of Military Affairs or Department of Wildlife Resources.
This $140 million would theoretically buy Virginia “at least” 1,000 new IT jobs over the next 17 years. That might sound like a lot, but in the context of a state’s economy it’s virtually a rounding error. In fact, Virginia’s economy organically added 1,000 information-industry workers between June and July of last year alone according to the Bureau of Labor Statistics.
There is simply no justification for Virginia’s taxpayers being asked to subsidize one of the world’s largest companies to the tune of $140,000 per worker in return for just one month’s worth of tech worker “job creation” spread out over more than a decade.
It’s also important to understand that any jobs created by these data centers would likely be created whether the state was handing out subsidies or not. Data center construction is exploding around the country as the rise of “cloud computing” has created immense demand for those facilities, and Virginia is Ground Zero for that explosion. According to national data center market research from CBRE, data center capacity in major markets around the U.S. was set to expand by 20 percent last year alone – and Virginia was already set to be home to more than half of that new construction.
Even if Amazon (or any other data center provider) were to leave Virginia and go someplace else after being refused a state subsidy, the reality of the marketplace is that some other company would be next in line to take advantage of the state’s combination of fundamental business factors that make it so attractive to data center operators.
Of course, Virginia has first-hand, recent evidence that subsidies do very little to influence Amazon’s site selection decisions. A few years ago, Maryland offered Amazon at least $5 billion more than Virginia did to locate its “HQ2” in Bethesda, just 10 miles away as the crow flies from its eventual Arlington location. If $5 billion couldn’t convince Amazon to shift its plans a half-hour Metro ride away for HQ2, it’s unlikely that $140 million would make much difference to the e-commerce giant’s decision about where to put mission-critical data centers.
What’s worse is that Virginia’s elected officials aren’t done yet with bad subsidy decisions. One of the big problems with bad state-level economic development policy is that it encourages local governments to make bad decisions as well. The press release from Gov. Youngkin’s office said, “Numerous localities in the Commonwealth are under consideration and will be decided at a later date.” This means that municipalities across Virginia will be put in the position of “competing” with local subsidy packages for the dubious privilege of hosting these facilities, at a very real cost to taxpayers and communities.
