Local governments are dangling hundreds of millions of dollars in tax breaks to persuade companies like Facebook, Google and Microsoft to build server farms in their backyards. But the deals are shrouded in secrecy and the average cost of $1 million per job raises questions about their value.
By David Jeans
Columbus City council member Emmanuel Remy listened intently as the lawyer on his computer screen argued why the company he represented was entitled to a big tax break. During the virtual council meeting in March, the attorney said the company intended to build a data center on a 500-acre site just south of Ohio’s capital city, which, when complete, would employ 20 people full time. In return, the company wanted $54 million in tax incentives. “This is like the new manufacturing,” the lawyer, Scott Ziance, told the elected officials. In particular, Ziance emphasized the benefit to the community in construction jobs as the facility was being built.
The company Ziance represented wasn’t Amazon, Microsoft or Facebook, but a Delaware-registered shell company called Magellan Enterprises LLC. It was Magellan’s undisclosed parent, one of the biggest technology companies in the world, that Ziance said had a track record of working “collaboratively” with cities — and wanted the tax breaks in exchange for jobs the data center would bring. “You’ll be very proud to have this company and its parent in your community,” he said.
PAYING A BIG PRICE FOR DATA CENTER JOBS
Forbes conducted interviews and reviewed documents and news reports to obtain complete tax break, employment and project information for 15 projects launched since 2015 that were anonymous at the time they received tax incentives. The combined $10 billion in value of the projects, which created approximately 837 permanent jobs, was offset by at least $811 million in tax abatements, penciling out to almost $1 million for every permanent job created.
When the council members voted in favor of Ziance’s proposal at the meeting, none of them knew the identity of the parent company, according to Remy. Nor did local residents, neighbors and other stakeholders involved. Only the mayor’s office and city employees who had negotiated and signed non-disclosure agreements were informed of the parent company’s true identity. While city officials declined to disclose the company’s name, even five months after the incentives were awarded, Forbes has identified the company as Google, according to two sources with knowledge of the matter. “We’re optimistic that we will be able to share news about an infrastructure announcement that involves the State of Ohio this week,” a Google spokesperson told Forbes. (Google announced a $1 billion investment in Ohio data centers, including the Columbus site, after this article was published.)
Columbus is one of dozens of cities and counties throughout the United States that are lining up to offer massive tax breaks to big tech companies looking to build data centers, as the demand for cloud-based computing grows to rival the need for other basic commodities. States including Virginia enacted legislation a decade ago to attract data center builders with next-to-nothing property taxes, leading to billions of dollars in investment from big-name tech companies and construction of more than 70 data centers in Virginia’s Loudoun County alone. Since then, more than 20 other states have passed similar laws — including Pennsylvania and Connecticut in the past year — specifically to attract data centers.
In an effort to outdo one-another, it has become a standard practice for these cities and towns to bow to demands from the world’s biggest tech companies to keep their identities hidden until they’ve secured the incentives. In one 2018 agreement with a small coalition of counties outside of Atlanta, Facebook negotiated a $71 million tax abatement package in exchange for a project that would generate 100 permanent jobs, according to documents provided to Forbes. Only after the incentives had been secured did Facebook announce itself publicly.
“We have Facebook and Microsoft and Apple and Google and Amazon: These are very, very profitable corporations,” says Kasia Tarczynska, an analyst for Good Jobs First, a non-profit policy advisory firm that has tracked data center subsidies. “They don’t want attention because it’s very easy to question why localities would give millions and millions of dollars to very wealthy companies.”
With more floor space than commercial aircraft hangars and enough room for multiple football fields, data centers house hundreds of rows of computers that process information from Instagram photos to government databases and have become crucial infrastructure for companies like Google and Amazon that have made lucrative businesses of hosting other companies’ computer networks — and need space to store their own. They consume large amounts of energy and water resources in the communities where they are built. Unlike manufacturing facilities, they typically employ no more than a few dozen people full time to maintain the servers.
Forbes identified 30 U.S.-based data center projects owned by big tech firms whose identities were obscured by code names or anonymous LLCs until after they were awarded tax incentives by local governments. While data on some of the projects is patchy — because cities and their elected officials are not always forthcoming about the incentive packages they approve — Forbes conducted dozens of interviews and reviewed documents and news reports to obtain complete tax incentive, employment and project value data for 15 projects launched since 2015. Their total $9.9 billion in value was offset by an estimated $811 million in tax breaks.
The price agreed upon by local governments with these anonymous shell companies is high. While the time period of incentives varies, the Forbes analysis showed that, on average, cities and counties are forgoing $1 million in potential tax revenue for every permanent data center job. By rough comparison, a 2020 study by researchers from Columbia and Princeton universities found that localities forgo an average $12,000 per job, per year when awarding tax incentives across all industries; auto manufacturers, for example, are typically awarded about $100,000 in tax abatements per job for the length of an average 10-year incentive. At Google’s Magellan project, the Columbus tax break pencils out to about $2.7 million per job for the duration of the 15-year abatement.
Some projects are even more costly. In 2018, using the shell company Stadion LLC, Facebook negotiated a $150 million tax break for a data center in Eagle Mountain, Utah, for up to 50 jobs, or at least $3 million per job. It was the first of several phases of the project that could see up to $750 million in tax breaks awarded. In 2017, Apple received $208 million in tax breaks for a project in Waukee, Iowa that would create 50 full time jobs, or more than $4 million per job.
Companies often point to potential security risks and the need to protect trade secrets as reasons for the need to cloak data center projects in LLCs and pseudonyms. Sometimes they highlight the need to keep their projects anonymous so that they can orchestrate bids between councils. And to explain the large tax incentives, they often promise multiple project phases, more investment, more jobs and in some cases vast capital expenditures like solar farms or community grants. They also point to the hundreds of construction jobs required to build the centers, which generate a spike in income taxes during the initial phase of the project — but which dries up once the tradesmen have left.
“These things are being done in the dark so that nobody has any time or ability to do any kind of studies to develop any kind of insight as to what the impact would be”
Apple, Amazon and Microsoft all declined to comment for this article. In response to questions from Forbes, a Facebook spokesperson said in an email that “Confidentiality is standard when companies work through large infrastructure investments like a data center. We work closely with state and local officials on agreements that are mutually beneficial and that bring jobs and investment to the region.”
The push for secrecy has also had the effect of delaying opposition from locals concerned about the environmental impact of data centers until after the project — and its tax breaks — have been secured. Only after Facebook secured tax incentives and water credits for a data center in Los Lunas, New Mexico — using a pseudonym — did community groups and politicians begin raising concerns about the viability of a water-consuming facility in the middle of the desert. Local regulators are now questioning Facebook’s proposed power usage over concerns it could lead to revenue shortfalls that could leave locals shouldering higher energy bills.
The threat of grassroots opposition that might derail projects has grown since local pushback successfully prompted Amazon to abandon plans for a second headquarters in New York City, where the company had secured almost $3 billion in tax breaks. “They’re like, a noisy enough minority to make things difficult, saying, ‘Hey, why are we giving all this money to these massive tech companies that make a bazillion dollars a year?’” says Pat Garofalo, a director of state and local policy at the American Economic Liberties Project, who tracks tax incentives. This has become particularly acute for data center projects, he says. “There’s just been a concerted uptick in residents saying, ‘Hey, we don’t want these things in our community, because the jobs are bad…and it harms the environment.’”
Amazon, which occupies more data centers in the United States than any other big tech company, according to Synergy Research Group, once went to great lengths to hide its ownership of the facilities — for example, making employees wear badges with a fake company name at one Virginia site, according to an internal documented published by Wikileaks in 2018. While Amazon still tries to stay anonymous in development of distribution warehouses for its e-commerce business, the company has turned to signing data center deals using well-known subsidiaries such as Vadata or Amazon Data Services. In other cases, the cloud giant has struck lease agreements with Corporate Office Properties Trust, a real estate investment trust that builds data centers. Amazon has typically negotiated deals in places like Virginia and Oregon, which have been opaque about reporting the total value of tax incentive packages.
Columbus and its surrounding localities have become one of several hotbeds for data centers; Google, Facebook and Amazon each have sprawling facilities in nearby New Albany. Work was slated to begin at the Magellan Enterprises site in June, but mystery still shrouds the project. As city officials with the department of development negotiated with Google’s representatives, they referred to the operation with yet another layer of obscurity: Project Cyprus. “In order to attract investment and jobs to our city, Columbus participates in the global industry practice of negotiating development opportunities with companies utilizing project code names,” a spokesperson for Columbus Mayor Andrew Ginther wrote in an email.
The auditor for Columbus’ home county of Franklin, Michael Stinziano, says he doesn’t agree with the practice. “I don’t understand the need to be secretive on a data center, I really don’t,” says Stinziano, whose office evaluates whether companies are properly adhering to mandates tied to tax incentives. “The public prefers transparency, as does the auditor’s office.”
Ziance, the attorney representing Google’s shell company Magellan, leads one of the country’s largest tax-incentive practices at the Columbus-based law firm Vorys, Sater, Seymour and Pease and lists one of his recent achievements as “representing a West Coast-based Fortune 50 company as incentives counsel in 13 states.” He is an expert at shielding companies from identification: Last year he co-authored an article in a trade publication for site selectors that stressed that it was “critical that the parties still carefully guard the applicant’s identity” using LLCs “at least until the incentive is awarded,” as a way to negotiate with multiple councils at the same time. Ziance declined to comment.
Only one council member, Shayla Favor, voted against the project. (In an email she said she did not sign a non-disclosure agreement, and was not informed of the company’s true identity.) But emails obtained by Forbes through public records requests show the outsized tax breaks raised concerns for some council members — even though they later voted for it. “20 jobs for a $54 million (!!!!!!) tax benefit. I don’t understand,” wrote council member Elizabeth Brown in an email to an aide ahead of the March 22 vote. “I thought the department was skeptical of the value of abating these data centers. They’re not big job creators. What does the city get from this?”
“There’s just been a concerted uptick in residents saying, ‘Hey, we don’t want these things in our community, because the jobs are bad…and it harms the environment.’”
Another council member, Rob Dorans, sent Remy an email saying he was “a bit concerned that the potential subsidy provided greatly outweighed the income tax generated for the City.” Later, when a constituent asked Dorans to explain the logic behind the deal, the council member wrote in an email that he voted for the incentives because the hundreds of construction jobs would offset some of the forgone taxes. Dorans did not address additional questions sent by Forbes.
“What ultimately earned my support in this case were the 300-500 prevailing-wage construction jobs and the additional revenues that will be generated for the City and other entities for many years into the future once the incentive period concludes,” Brown said in an email to Forbes.
Some local residents opposed the project because the data center is set to be built on a farm property listed on the National Register of Historic Places. When the site was rezoned for industrial use in October last year, the Far South Side Commission, a council advisory body that represents the neighborhood where the project is located, voted against the rezoning over concerns it would affect property values in the area.
Other residents say they were unaware the mystery company had signed a deal with the local Hamilton School District to pay up to $9 million over the period of the tax abatement, less than what the local schools would have received without the incentive. (In Franklin County, about 75% of property taxes are used to fund schools.) John Lute, who lives near the proposed site and has a child at the school, says he was unaware that the school had reached a deal with the company. “These things are being done in the dark,” Lute says, “so that nobody has any time or ability to do any kind of studies to develop any kind of insight as to what the impact would be.”
City officials told Forbes that the data center project was a more desirable use of the site than a factory or distribution center because it would generate less traffic. Remy says that he saw little risk for the city, as the incentives are performance-based, meaning that if the project doesn’t create its promised jobs, or is incomplete, it won’t get the full $54 million in incentives. “At the end of the day, this comes down to whether or not the organization is going to fulfill their commitment,” he says. “And there’s literally no doubt that they would, or will.” Remy also shrugged off the suggestion that the tax incentive process was opaque, because there were public meetings held to discuss the project.
But those meetings didn’t result in Remy — or the public — learning in advance that Google would be moving in next door.
Iain Martin and Helen Popkin contributed research.