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Controversy over low-staff data centres getting tax breaks for boosting local employment

Tue 17 Feb 2015

A debate has broken out in Hillsboro, Oregon, regarding the incursion into the area of new data centres which receive significant tax breaks in enterprise zones but are not required by legislation to employ more than one person.

According to the Oregon Department of Revenue, Infomart Portland – recently merged with Portland Data Centers – saved $775,000 (£505,000) on property taxes in 2013 through 2014, despite only employing one person full time, whilst other data centres taking advantage of the state’s enterprise zone program are reported to be employing as few as two.

Data centres are hermetic operations which are increasingly being structured to run autonomously. For instance the newly inaugurated underground Erwin bunker data centre in Germany’s Börfink municipality is designed to employ as few as 15 people, and in fact most of the complex actually runs with inadequate oxygen to support life.

In the case of Erwin, the plant was constructed in a very low population area (191), where the provision of fifteen jobs represents a worthwhile opportunity to the locality. By contrast Hillsboro has a population of nearly 100,000, and though its unemployment rate sits at 1.5% below the state average of 6.7%, it could use the work.

According to the report, 15 businesses in Hillsboro saved over $11.5mn (over £7mn) in property taxes in the last full tax year, but tech manufacturers, including Solarworld and Qorvo represent 87% of the 1,360 new jobs created, for which their agreements to employ and spend locally is accompanied by guaranteed wage agreements. Infomart Portland and other incoming data centres to the city zone are reported to have created just seven jobs between them, despite receiving proportionally greater tax breaks than highly-staffed Qorvo.

Of economically-inert data centres, Hillsboro Economic Development Director Mark Clemons says: “They have a fairly substantial capital expenditure…The jobs they do create are higher-paid jobs”. The previous occupant of Clemons’ role stated in 2011 that the city might raise the minimum jobs threshold required in the agreement should incoming data centres choke job growth whilst grabbing land from business that might contribute more to the local community. But in spite of ongoing expansion and establishment plans for increased data centre facilities at Hillsboro, Clemons has made no announcement of a raise in worker requirements for the establishments.

Additionally the Electronic Commerce Zone Program offers further incentives for data centre establishment in the area, giving DC business credit to the tune of 25% of their annual revenue, or $2mn ($1.3mn), whichever is the lower.

The deals struck under Oregon’s enterprise zone program cover a maximum period of five years, which some have criticised as pandering to established data centres by lowering long-term commitment and giving the DC companies tremendous negotiating power for further or extended cuts or benefits at the end of the agreed terms.

Others counter-argue that data centres consume such large amounts of electricity as to constitute a regional benefit to the branches supplying power. In Europe, this would be a scandalous justification; in more densely-populated Britain, for example, new data centres are benefitting instead from such pro-green deals as the Climate Change Levy, which offers a 90% tax rebate in exchange for meeting efficiency targets.

Earlier this month Amazon sent an official to stand outside Oregon state lawmakers in protest against the possibility of ‘central assessment’ – the levying of property taxes on utilities and telecom organisations – being applied to data centres, and effectively announced a blockade on further data centre investment from the online retail giant in the region until the issue is clarified.

Tax incentives for data centres vary across the United States, but some of the less populous or larger states are actively engaged in attracting them. Texas lives up to its famed love of the grand by stipulating 100,000 square feet as the minimum footprint requirement to enter its own data centre tax break offerings – but permits multiple establishments inside, all of which can benefit from the offer. The state of Virginia exempts sales tax on business-focused hardware and equipment for data centre operators and colocated tenants. And Arizona features write-offs for energy expenditure amongst its own unique package to attract DC trade.


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