Untangling the local and state tax revenue implications of a data center deal can be just as problematic as marshalling local support for a major project.
"The thing we want to emphasize about data centers is these are not traditional in that they're fast tracked, and in many cases handled by a jurisdiction that may not be the city or county," said Kyle Wedberg, a senior manager of research and consulting with the Government Finance Officers Association.
"Just because this is happening at a jurisdiction that may be outside of your own and it's happening fast, doesn't remove the need, and in fact may underscore the need to be ready to make asks as it relates to development agreements and community benefits agreements."
The comments came from a webinar hosted by the National Association of Counties, which is working on supplying public finance tools that benefit local governments evaluating pitches from data center developers.
Data centers are now political lightning rods, potential sources of tax revenue, and the rope in a tug of war between states and local governments trying to spur economic growth without raising utility rates or damaging the environment.
"We have seen our members contribute to water infrastructure, particularly helping the water utility increase what we call purple piping, which is the infrastructure for reclaimed treated wastewater," said Nicole Riley, the director of Virginia Government Affairs for the Data Center Coalition.
The promise of economic development that existed before opposition calcified changed tax policy across the county.
"At least 38 states offer some form of tax exemptions to attract developers," said Jarron Brady, senior policy advocate of GFOA's Federal Liaison Center.
The incentives include sales and use tax exemptions on construction materials, computer equipment, cooling systems, and software. Several states offer low or no taxes on electricity rates charged to data centers.
Tax breaks at the county level include property tax abatements, and the creation of tax increment financing districts that may span multiple municipalities.
While the lures are out all over the country, so is the backlash.
"I was able to find 42 examples of different counties that have set restrictions," said Brady.
"They mostly span Maryland, Indiana, and Michigan. With such a rapid shift in public awareness and opinions on data centers, coupled with the November election, we fully expect elected officials at the county level to have to have answers on where they stand."
The GFOA and NACo are framing out some best practices for municipalities who are open to the promise offered by data centers.
"The greatest economic development birth is on the construction side," said Wedberg.
"The taxes are there but may not have a long-term economic development boom past construction because of the light footprint of employees."
Thinking longer term about county needs could involve improving grid resilience, along with imposing impact fees for water and road use. Many municipalities are requiring a floor level of new job creation once the project is online.
"Don't think about this like the Christmas Amazon gift card that your kid puts together," said Wedberg. "This really does need to be something that ties into your strategic plans, master plans, CIPs, your budgets. Think about the things that your community has already done and build some of that into the CBA or developer agreement."
