$5B Switch data center set for construction after MI legislators approve tax breaks

Dive Brief:

Michigan Governor Rick Snyder is on the political ropes trying to explain why he backs tax breaks for a proposed $5 billion Grand Rapids data center when he has a history of vehemently opposing such tax breaks for others, the Associated Press reported.
The legislation, which Michigan legislators passed Tuesday, would exempt Switch, its "co-located" clients and about 40 other Michigan data centers from paying sales or use taxes on servers, computers and other equipment for 20 years. One caveat: The state’s data center industry must add 400 jobs by 2022 and 1,000 jobs by 2026 for the breaks to continue.
Switch has more than 8 million square feet of data centers in Las Vegas and Reno, NV, and the company said it chose Michigan for its first facility in the eastern United States due to the state’s weather and lack of natural disasters. The company also said it chose the old "Steelcase Pyramid" building in part because its location is still within the "millisecond protocols" needed to serve major markets. Switch estimates that it will employ 1,000 people at the Michigan site at a minimum of $15 per hour plus benefits, with most jobs paying $60,000-$200,000.

Dive Insight:

The incentives for data giant Switch’s new center, Snyder said, are for the benefit of an industry rather than the individual business bailouts he has fought against previously.

Opponents claim the legislation is unfair to industries that have been denied state tax breaks and cite Michigan's recent elimination of film industry tax incentives, according to the Associated Press. Critics also said that businesses have redeemed larger than anticipated tax credits this year under a previous program and have created shortfalls in the state budget.

The state’s nonpartisan House Fiscal Agency estimates the tax breaks, for data centers only and not co-located clients, will result in a $13 million annual loss in revenue, the Associated Press reported. Officials also said it is possible that existing companies will spin off their data departments into separate entities in order to qualify for the tax breaks.

"To pick and choose the property that is exempt is to leave every other taxpayer, every other loyal taxpayer, without the political muscle to extract an exemption for themselves to wonder who is representing them and why they must carry the cost of government," state Rep. Earl Poleski said.

Switch, whose clients include eBay, Google and Amazon, said the data center should be operational by the end of 2016.

Despite the spotlight on Switch, Northern Virginia is actually the largest data center market in the U.S., with 20% market share, according to real estate firm Jones Lang LaSalle, Inc. The area is home to one million square feet of data center space under construction and 7.3 million square feet already in use. Amazon is also building a solar farm there to power its cloud computing platform's data centers.