Data Centers: A Flood Of Tax Revenue, But Constrained By Electricity

From the outside they look like any other warehouse, painted in a drab color and surrounded by a tall security fence. But the insides hum with constant activity as thousands of computers operate around the clock.

These buildings are data centers and they belong to some of the largest tech companies in the world, like Microsoft, Dell and Yahoo.

They’re used for storing data and analyzing it on a massive scale.

For them, North Central Washington is mecca. There are large swaths of open land and a low risk for natural disasters. It’s close to Seattle, a major tech hub with an international airport.

Most importantly, the energy in NCW is the cheapest in the nation. Data centers use more power than any other industry in the area. A single center could use enough energy to light 25,000 homes.

Power consumption is normally where the conversation about data centers starts and stops. But they have quickly become the most valuable property in the region, dwarfing fruit companies and large retailers in assessed valuation, according to a Wenatchee World analysis of property records.

In Grant County, the epicenter of the data industry in NCW, seven of the 10 taxpayers with the largest assessed valuations are tech companies.

The taxpayer with the highest value in Douglas County, a single data center company, is worth more than the next nine most valuable taxpayers in the county combined.

This growth has brought in millions in tax revenue, and even dropped levy rates for many neighboring taxpayers.

“If they’re paying a million dollars in taxes they’re moving it off other people,” Douglas County Assessor Jim Ruud said in an April interview. “It helps increase the tax base and it’s beneficial to everybody.”

And in Chelan County — which lags far behind in data center presence compared to Grant and Douglas counties — a potential policy shift may open the door for industry growth.

Fifteen years ago the Quincy Police Department had one patrol officer on duty at a time. If backup was needed, the officer would have to call another department or an off-duty officer.

“It was a huge safety issue,” Police Chief Kieth Siebert said.

Now the department has three times as many officers and has a new headquarters. A new building for fire and ambulance services was built, too. Quincy also has a new library, city hall and high school. There are also plans for a recreation center in the future.

Tax contributions from the town’s data centers are responsible for the development, said City Administrator Tim Snead.

“For the city of Quincy they’ve been very, very positive to the community,” he said. “Not only in our property tax valuation and sales tax, but Microsoft has been really involved with things in the city like food distribution.”

Microsoft was the first data center company to build in Quincy and now has more than $1 billion of real estate and equipment in the area, according to Grant County Assessor’s Office records.

In 1998 the total property in Quincy was valued at $217 million and provided $839,300 of annual property tax revenue for the city, according to city documents. Twenty years later, property in the city is worth $2.7 billion and contributes $4.29 million in annual taxes.

The increased value has also brought down the levy rate for every resident by about 45 percent.

“The city’s financial situation is very good, (the data centers) have been a good thing for the entire community,” Snead said.

The centers also brought increased housing for the city, Snead said. Quincy’s population has grown 45 percent since 2000, according to U.S. Census data.

“When I first came here, I had three homes to pick from. That was it,” Snead said. “There was nothing else on the market and nothing was being built. Then when Microsoft and Intuit and Yahoo announced that they would be building data centers here we finally started getting some housing developments.”

The tradeoff, of course, is power consumption. Twelve years after the first center was built, the county’s data centers accounted for 32.4 percent of the county’s total power consumption in 2018, according to the Grant County PUD.

Seven Grant County data centers used 181.77 average megawatts in 2018, or enough energy to power about 81,796 homes, according to the PUD.

In the early 2000s, there was similar growth across the state as fledging internet services began to take off worldwide. The bigger they grew, the more data they needed to store and many turned to Washington state for the power and available land.

Then a dispute over state tax incentives in 2007 — combined with the recession — sent the data center companies elsewhere, Joseph Williams said in a February interview. Williams is Gov. Jay Inslee’s information technology sector lead and the tech industry economic development director for the state Department of Commerce.

Those tax incentives were restored in 2010 but data center growth in Washington still hasn’t caught up, he said.

“We went from being top three to not being in the top 12,” he said. “… You look at the growth rate for these other states where it’s double-digits and you look at our growth rate and it’s barely 3 percent, you can’t argue that that’s good.”

Williams spoke before the Washington House of Representatives’ Innovation, Technology and Economic Development Committee in Olympia in January about data centers and his team has been attending industry conferences to encourage growth across the state.

But at the end of the day, the local governments need to be willing to accept the business if companies are interested, he said.

“The state of Washington is constitutionally set up so these decisions are made locally,” he said. “What the state does is we help educate the PUDs, the Ports, and the county officials. We’ll help them if they want to go attract business but ultimately it’s a local decision and we respect that decision.”

Data centers are so large and use so much power that they normally require buy-in from local officials before construction. That buy-in hasn’t always been there, Williams said.

“I don’t know if it’s fair or not but there’s this perception that the North Central Washington counties have given up on data centers or that they don’t see it as a good way to invest their electricity,” he said.

Because of the centers’ unique power needs, local PUDs are often forced to be gatekeepers. Even if there is power available, which isn’t always the case, the utility also has to be willing to provide it to the data center.

For many years, the Chelan County PUD wasn’t interested in the business because it didn’t fit the utility’s business model, said General Manager Steve Wright.

“I think that early on we really didn’t have that much interest in serving them,” Wright said. “We only had the industrial rate and we weren’t that interested and I think people could pick up on that. I don’t think we ever said ‘no go away,’ but it’s about how welcoming you are.”

That’s left Chelan way behind Douglas and Grant counties in terms of data center presence. It only has one: a small center in Olds Station owned by Actapion, a subsidiary of Yahoo Japan.

That company just turned to Douglas County for a new center, a multi-million dollar project just a few hundred yards away from the Sabey Corporation, a Seattle-based data center company.

Sabey has been growing its Douglas County operation for a decade and is now putting in a third massive data center building next to the airport. It has a contract with the Douglas County PUD for 52 megawatts of power for those three buildings.

Sabey also has centers in Quincy and a 30 megawatt contract for power to run those.

“We started out in Douglas County and we had a great experience there. The county was really welcoming and very good to work with,” Sabey Vice President John Ford said in a January interview. “I think we like both locations, we just wanted a presence in both.”

Sabey has both the space and a plan for growth — the company estimates it could put five more buildings on its 100-plus acres of undeveloped land north of the airport in Douglas County, Ford said.

Sabey looked to Chelan County at one time but was told that the Chelan PUD only had a few megawatts to sell, which wasn’t enough for the project Sabey wanted to build, Ford said.

But the Chelan County PUD’s business model has never been geared toward large local power loads. It generates more than 1,000 megawatts of power annually from its three dams and sells roughly 80 percent of it on the wholesale market to other utilities.

And by nearly all metrics, that strategy has been successful. It’s helped the PUD lower its debt-equity ratio below 35 percent and helped subsidize the electricity rates for local customers.

Now the PUD is in the middle of a five-year strategic planning session and one of its key questions is whether it should continue to prioritize power for the wholesale market or re-allocate some of that power for local large loads and economic development.

The PUD is in the process of collecting public feedback for that strategic plan now.

“If the information that comes back to us says you really need to be more involved in looking at what a data center or a similar proposition would have as value to Chelan County PUD and its ratepayers, we’re not going to ignore that,” Chelan County Commissioner Dennis Bolz said in a March interview.

The utility recently dipped its toe in the water by developing a high-density load rate structure and now has one big customer to show for it: the Diamond Foundry.

The foundry, which is in an old Stemilt warehouse, hasn’t begun manufacturing diamonds yet, but it will use several average megawatts of power when it does.

But it’s a complex question that can be difficult to both quantify and explain to customers, Bolz said.

Bolz, for example, said he has never had someone “stop me in an isle at Albertsons, and say ‘Dennis, why don’t we have data centers here?’ Not one person in Chelan County has expressed to me that burning desire to bring that in.”

And those residents — either through public feedback or by who they elect — will be the ones to decide whether the centers are right for their community, said Williams, the governor’s information technology lead.

“It comes down to the citizens of North Central Washington,” he said. “What do they want their economy to look like? Electricity is a scarce resource but how do they want to invest those scarce resources via the election of PUD officials and Port districts? This is probably the big issue of this decade. What do we do with this stuff? How do we best invest it?”―Herald Net