From the Lab

The Data Center Economy – and Local Efforts to Grow It

Data centers play a leading role in US economic life. This is clear at both a macro level and in regional terms, where state and local governments are encouraging their development.

As a proxy for the strength of the “data center economy,” consider corporate values. The top-three most highly capitalized U.S. companies in late June 2015 are all leaders in data center design, construction and use, with number-two Google being a pure-play web company. At that time, Facebook also had just bumped Walmart from the number-ten position.

Another indicator is aggregate energy consumption. According to the Natural Resources Defense Council, it took nearly three dozen 500-MW power plants to generate enough electricity to power all of the U.S. data centers in operation in 2014, from small IT closets to the large-scale (and more highly efficient) facilities run by cloud and other providers.

Those mega data centers also play a leading role in local economies. The Fort Worth Star-Telegram details a large anticipated economic boost from three massive facilities that Facebook is planning in that part of Texas. One point of reference is Facebook’s center in Forest City, N.C., which reportedly led to the addition of 4,700 state jobs across the state and a $680-million economic impact.

Large data centers may not employ large numbers of people, but the facilities have a multiplier effect, which is why governments in Texas and elsewhere use policy to encourage their construction.

In Pennsylvania, bills advancing in the House and Senate are aiming to make the state more attractive for data center construction and expansion by offering tax advantages. The proposed legislation would exempt qualified companies from state and local sales tax on equipment and software needed to run a data center. Neighboring states already offer similar advantages.

These exemptions, according to Data Center Dynamics, could lead to significant savings for data center operators and tenants. The overall state tax is 6 percent, with Philadelphia levying an additional 2 percent, and second-tier cities another 1 percent. Among the criteria for eligibility are minimum levels of investment, scaled to the population of the surrounding county, and a guaranteed minimum annual payroll. Data centers would be obliged to meet these requirements within four years of being certified.

By virtue of being located in a Keystone Opportunity Improvement Zone (KOIZ), Keystone NAP already stands to benefit from an extensive range of tax incentives. As long as the KOIZ status for the US Steel Fairless Heavy Industrial site is active, Keystone NAP has the opportunity to minimize its state and local tax burden through exemptions, deductions, abatements and credits. In addition to these benefits, Keystone NAP has found additional support at the local level. For more information on financing and loan guarantees provided by the Bucks County Industrial Development Authority (IDA), see this press release from March 2015.