Government-Sponsored Development—Less Than Meets the Eye

"We need to look like we are doing something for that community."
Wyoming Sen. Wasserberger, Joint Appropriations Committee, January 26, 2015

Facing declining mineral tax revenues, the desire to continue spending and the inability, so far, to raid the rainy day fund, Gov. Mead's push to diversify the economy to create jobs and generate more tax revenue shifted into overdrive. His direction? The governor made yet another announcement about an investment by his chosen one – Microsoft's data center. Yes, Microsoft is investing more in the state, but in exchange, the governor is doling out more corporate welfare. Corporate welfare is a costly way to appear to be doing something to diversify the economy to create jobs and increase tax revenue.

Data centers are warehouse-like buildings that hold electronic equipment to process and store data. These capital-intensive centers have started dotting the countryside as we shift from paper to digital information storage. For example, Microsoft Corporation is investing more than $650 million in Cheyenne to build a building and fill it up with equipment such as computer servers. Because this type of equipment is expensive to keep cool, data center companies look for locations with cooler temperatures and low energy costs. Wyoming fits the bill as a natural location for data centers.

But we couldn't just let our natural advantages attract business to the state—how would politicians take credit for that? The problem? Data centers create very few jobs and are given big subsidies and tax breaks, so taking credit for business attraction to appear to be doing something for the economy has much to do with why governments bribe businesses to come to town.

Microsoft's latest announcement, on February 17, 2015, unveiled an additional $200 million investment, increasing its total data center investment in Cheyenne to about $652 million. This should add 25 jobs at the cost of a $5 million Governor's Data Center Recruitment Grant for infrastructure, or $200,000 per job.

This was quite a deal compared to the cost of past job creation announcements.

In 2012, Gov. Mead announced that Microsoft Corporation had chosen Wyoming as the location for its new data center. All told, that $178.8 million investment received $12.25 million in handouts from the state, $1.5 million from the City of Cheyenne and created about 25 jobs. That's about $550,000 per job.

Together with the February 2015 announcement, Microsoft received subsidies of almost $19 million for 50 jobs, bringing the average cost per job down to $380,000.

But wait! On April 25, 2014 Microsoft announced an investment of $274 million but with no new jobs or handouts. Does that mean we have lost out somehow?

Not according to corporate welfare cheerleaders. The other argument used to justify corporate welfare is that these companies pay taxes and so tax revenue will go up whether new jobs are created or not. But the government gave Microsoft a sales tax exemption on its purchases and rentals of qualifying equipment such as computers, servers, monitors, keyboards, storage devices and other peripherals, racking systems, and cabling and trays. That pretty much covers the equipment that goes into a data center, so any sales tax paid would be on construction materials and power consumption—but wait again! Microsoft got a $2.5 million grant to help it, poor thing, cover some of its power consumption costs.

No matter. According to the Wyoming Business Council, Microsoft's data center is expected to pay $15.6 million in sales tax to the state and local governments over a 10-year period, or $1.6 million per year, even with the exemption. But Laramie County collected $118 million in sales tax in 2014 (part goes to the state and to local governments) and $1.6 million is just 1.4 percent of $118 million, so not only is data center job creation underwhelming, the sales tax revenue bonanza may be a bust as well.

The property tax take is a bit bigger. According to the Wyoming Business Council, the Microsoft Data center will likely pay about $24 million in property taxes over the next 10 years, or about $2.4 million per year. Laramie County collected about $12 million in property taxes in 2013.

Handouts to companies who may have come anyway because of Wyoming's natural advantages are a colossal waste of money. Picking favorites is an ineffective job-creation tool with elusive tax revenue promises. The fundamental problem is that handing out tax dollars to businesses is not the role of government. All government can do, and should do, is create an attractive investment climate and a level playing field so businesses can compete for our dollars in a fair environment.

The message is clear: large-scale corporate welfare schemes continue for appearance's sake.