REGIONAL— A bipartisan group of lawmakers is once again proposing to sweeten and extend tax incentives for the construction of large data centers in Minnesota, and that comes at a time when public awareness and opposition about the impact of such centers is growing.
The measure, first introduced last year by Sen. Grant Hauschild, DFL, of Hermantown, has about dozen co-sponsors in the Legislature this session, including Senate Tax Chair Ann Rest. Hauschild’s measure won approval in Rest’s committee late last month, despite mixed takes on the measure by several groups represented at the hearing.
The state has given sales tax exemptions for construction and equipment-related purchases for data center operators who make at least $30 million in purchases since 2011 and the financial impact of that law has grown over time.
Hauschild’s bill, which would provide the up-front tax break for data centers, would be limited to the largest facilities, those that spend at least $250 million in equipment purchases. Hauschild says the measure is needed to ensure that Minnesota remains competitive with neighboring states in order to attract more data centers, essentially vast server farms, that provide the computing capacity that powers the internet, cloud storage, artificial intelligence, and the creation of cryptocurrency.
At last week’s hearing, Hauschild argued that data centers help many of the devices that we use daily operate. “With this new age of technology that we’re in, people don’t realize that the things they use each and every day come from the cloud. They come from technology. They come from data centers,” he said. Hauschild said the growth of data centers is spurring significant new construction as well. “This bill will provide thousands of construction jobs and hundreds of permanent well-paid positions in these new technology facilities.”
That view was echoed during the hearing by Joel Johnson, representing the International Brotherhood of Electrical Workers, or IBEW, which represents over 15,000 electrical workers from around the state. “This is one of our key priorities for this session,” said Johnson. “We believe that if we are to fully take advantage of the benefits of hyperscale data centers, we need to make sure that state laws and taxes are aligned to encourage their construction here in the state. Having them built and operated here in Minnesota means literally thousands of jobs for IBEW members when the facilities are being built and hundreds of permanent jobs when the centers are operational.”
Hauschild noted that the data centers also provide a substantial property tax impact for many communities and said they can help to replace other large industrial operations, such as coal burning power plants, that are disappearing in the state and taking their property tax base with them.
Concerns about growth
While many communities are eager for the tax revenue such centers can generate, as the size of the facilities grow in scale, their impact on communities has increased as well. Neighbors often complain of noise from enormous cooling fans that run 24 hours a day, as well as nighttime security lighting.
But the centers present broader concerns as well, according to Kathryn Hoffman, CEO of the Minnesota Center for Environmental Advocacy, which has recently begun to focus on this emerging issue.
The facilities use staggering amounts of electricity, oftentimes more than the rest of the cities where they are located combined.
Hoffman said that has implications for Minnesota’s commitment to meet clean energy goals. For years, despite growth in the economy, power demand in Minnesota and around the country has remained relatively flat as residential, commercial, and industrial power users adopted energy conserving technologies. Stable power demand has made it easier for utilities to meet energy needs while still making the transition to renewable forms of energy. But power demand is now rising in Minnesota and nationally, largely due to the rapid spread of power-guzzling data centers.
This sudden increase in demand, combined with the expectation that data center growth will continue for the foreseeable future, prompted the state’s Public Utilities Commission, or MPUC, last month to grant Xcel Energy’s request for a new natural gas-fired power plant to meet the skyrocketing demand from data centers.
That means utilities will need to invest in more generating capacity over the next 15 years, complicating the state’s goal of 100 carbon-free electricity by 2040. Xcel says it will meet that goal five years early, even as it invests in the expanded capacity, which it says will mostly come from wind, solar, and the greater use of battery storage.
Hauschild says he’s a proud supporter of the state’s climate-related clean energy goals. “The beauty of those goals is they are an across-the-board regulation that requires meeting standards, so these data centers will still require our utilities to meet climate goals. I’d rather these data centers be under our climate goals than in China or Iowa where they do not have these goals.”
Vast users of water
If the power usage of data centers is enormous, their use of water could become an even bigger issue, and it’s one that’s not well regulated or understood. A large new data center can literally double a community’s demand for water, which is used mostly for cooling the thousands of computer servers contained in such facilities. Since most of these facilities are located in suburban locations or small cities with existing municipal water supplies, they don’t need to obtain water withdrawal permits, which would give the public some idea of the scale of the water usage by these centers. “The amount of water being used by these facilities is not getting the scrutiny it deserves,” said Hoffman.
And what happens to all the water that these facilities utilize for cooling? Hoffman said it’s not at all clear, since there is so little transparency or any standard framework around the permitting of such facilities. Assuming it is discharged into municipal wastewater treatment systems, it is likely to rapidly consume capacity for many small communities, requiring costly expansion of systems, a cost that is likely to fall on ratepayers.
Hauschild said that no community is being forced to accept a data center if their utility capacity is insufficient, but for those that do have the capacity, they can be a major tax generator.
“Communities have every right to deny permits based on their utilities and the state is still involved in any permitting processes,” Hauschild added. “In addition, many data centers are utilizing recyclable circular water systems which would reduce the use and output.”
An expensive corporate giveaway?
Residents who live near proposed data centers say they’re worried they’ll end up facing higher costs for basic services and question why these huge companies need tax breaks to support projects that they believe will harm their neighborhoods.
“These developers prioritize their profits over our electrical supply, water resources, home values, air quality, and overall quality of life, while the risks are left to the people,” said Cathy Johnson, a Farmington resident who is opposed to a proposed large new data center in that small community south of the Twin Cities. “Placing an industrial-scale facility in the middle of residential neighborhoods, with no clear guard rails on its water and energy use, is reckless,” she added. “We need our leaders to prioritize the well-being of our community over corporate profits.”
The state is already giving up a considerable amount of revenue under the existing law allowing rebates of sales taxes for data centers. The impact of the existing law has grown over time and currently costs the state just over $100 million in lost revenue annually, according to the Legislature’s Tax Expenditure Review Commission.
The additional cost of Hauschild’s measure might never be known— a point that critics of the measure made at last week’s hearing. Currently, data center operators taking advantage of the sales tax exemption are reimbursed after paying the tax, and they have to submit receipts to the Department of Employment and Economic Development, which provides a way to track the cost of the program each year. Hauschild’s bill would provide the exemptions up front for qualifying data centers, which means the companies would never have to document their expenditures. Without such documentation, critics argued there would be no easy way to determine the additional fiscal impact of the measure.
Regardless, critics question the wisdom of the state exempting some of the world’s largest companies from the sales tax. Because Hauschild’s bill requires data centers to purchase at least $250 million in equipment to qualify for the extra exemption, critics say only the largest data center operators, like Google or Amazon, would benefit.
Hoffman was blunt in her assessment. “My take is it’s an open-ended blank check to the largest companies that have ever existed.”