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Slush Funds Splash Subsidies on Data Centers

Back in 2012, Governor Matt Mead announced that Microsoft would build a data center in Cheyenne at a cost to Microsoft of $112 million. Since then, Microsoft has announced two expansions. Supporters cheered that the data center would diversify the economy and, according to Gov. Mead’s press release, “bring high-paying, technology jobs to the state.”

What diversification cheerleaders neglected to mention was data centers don’t bring many jobs and Wyoming taxpayers would be paying for each one of those jobs in a myriad of obscure but costly ways.

When politicians start talking about economic diversification, hold onto your wallet because this talk is merely government-speak for corporate welfare. Corporate welfare allows politicians to provide a unique benefit to a specific company or industry under the guise of doing something for the economy.

Governments in every state use other people’s money to attract businesses, and job creation is the oft-touted rationale. But how many jobs will the Microsoft datacenter create? The first $112 million center created 18 jobs. The second center, at $66.5 million will create an additional nine jobs. The total investment of the initial project and expansion will be about $178.5 million. The most recent, $274 million announcement will create fewer than 10 jobs.  

So Microsoft is investing about $450 million in datacenters in Cheyenne to create perhaps 37 jobs. This sounds great, but is it? How much will each job cost taxpayers?

The state government started handing out money before the third expansion announcement with its additional maybe 10 jobs. Back then, Microsoft received a $5 million “Managed Data Center Cost Reduction” grant.  In plain language, this money covers some of Microsoft’s electricity and broadband cost. It also received a $5 million Governor’s Data Center Recruitment Fund handout, meaning it got your money to prepare the site for the facility. Then it got another cost reduction grant of $2.25 million, so the total state subsidy was $12.25 million.  Then the City of Cheyenne chipped in with a $1.5 million grant to set up a renewable fuels project. For the 27 jobs created in the first two phases of the project, Microsoft received more than $13.75 million in bribes. That is almost $509,000 per job, but this calculation does not include the value of free land, and the data center sales tax and permit exemptions.

Cheyenne LEADS provides in-kind benefits such as free land to businesses to attract them to Cheyenne. To attract Microsoft, Cheyenne LEADS gave the company 50 acres in its North Range Business Park, west of Cheyenne, and an option to buy an additional 30 acres, which it took at its own cost of “several million,” according to Randy Bruns, Cheyenne LEADS CEO.

Cheyenne LEADS does not value its property according to the market price; but rather in terms of jobs and capital investment per acre. Cheyenne LEADS is a membership-based organization and receives less than 15% of its funding directly from government. Private individuals have a right to use their own money to attract new businesses to an area, but when they leverage tax dollars to bribe businesses into town, taxpayers are forced to pay for other people’s favorites rather than use their money for their own purposes. Worse still, not only does the economy suffer when government misallocates resources, but local businesses and entrepreneurs can be forced to subsidize competitors.

But that doesn’t stop politicians and their pals from finding ways to provide benefits to their favorites.

For example, data centers also get a sales and use tax exception on “qualifying” equipment and power supply purchases. According to the Wyoming Department of Revenue, between July 2010 and June 2013, the state sacrificed $3.4 million in sales tax revenue with this exemption. Those data centers employ 45 full time staff. That means each job cost about $75,555 in forgone sales and use tax revenue over three years. 

But it doesn’t end there.

The Data Center Permit Exemption gives a data center with more than $178.3 million in capital investment an exemption from the bother of applying for an Industrial Siting Permit. This presents a cost savings of approximately $500,000 for permit application preparation, wildlife studies, economic analyses, public meetings, permit hearings, attorney fees, and other sundry irritations. 

Microsoft’s first two investments equaled—wait for it—$178.5 million. What a coincidence!

If siting permits can be blown off this arbitrarily, they should be eliminated entirely.

Data centers don’t employ many people but taxpayers are forced to pay up for those few jobs.  So when politicians wax eloquent about the benefits of economic diversification, don’t believe it . While jobs are created, they aren’t cheap and have unseen consequences that could kill jobs in other areas of the economy.

If politicians really wanted to do something for the economy, they would eliminate burdensome red tape and lower taxes for everyone, not just their favorites.

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Monday, 25 September 2017
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