Some counties in Southwest Virginia, beset with population losses and high unemployment rates, have looked toward the data center boom in Northern Virginia and wondered how they can attract at least a few of these facilities.
To make themselves more attractive, they have cut their data center tax to the lowest in the state. In Loudoun and Prince William counties, the data center equipment tax rate is $4.15 per $100 of assessed value; in Dickenson, Lee, Scott and Wise counties and the city of Norton, it’s 24 cents.
These Southwest localities have also explored innovative concepts designed to address the concerns over the volumes of water that data centers require for cooling.
There’s been a study about using the water in abandoned underground coal mines.
There’s even been the suggestion that some data centers could be located in dry abandoned mines, which are naturally cool.
Despite all those efforts, data centers have not rushed to locate in Virginia’s westernmost corner.
Data centers have continued to proliferate in Northern Virginia; that’s where the labor market is and that’s where trunk lines for internet traffic are — two things that data center companies say are necessary for their operations. More recently, data centers have started to push down the Interstate 95 corridor and a few have announced plans to locate west of the Blue Ridge — a Google operation in Botetourt County and another in Wythe County. However, the recent proposal, for a data center in Wise County that Cardinal business reporter Matt Busse wrote about, remains a rarity: a data center in what we once called coal country.
Virginia is a diverse state and here is one aspect of that diversity: We have some in one part of the state who are fed up with data centers and some in another part who are desperate for them.
We also have a conflict in the General Assembly: The Senate’s proposed version of the state budget calls for doing away with the state’s tax break for data centers; the House budget does not. This is a fascinating political battle that pits the two most powerful Democrats in the General Assembly against each other and both also just happen to be from the same city, Portsmouth.
On the Senate side, Finance Committee chair Louise Lucas is posting almost daily on X (formerly Twitter) about her determination to eliminate that tax break: “When asked earlier today how strong my position is on eliminating the tax break for data centers; I asked if they would like to learn about the strength of the three types of steel we used at the shipyard.”
On the House side, Speaker Don Scott rallied with electrical workers and declared: “I love the jobs that they create, and I love Virginia’s economy to do well. So it’s not just that I love data centers, I love the fact the jobs they produce. We have to be realistic about what we’re producing … good union jobs.”
In January, I wrote about the history of those data center tax breaks, which began in 2008 as a way to help economically distressed counties attract high-tech employment but was later expanded statewide as a way to position the state to be an East Coast tech hub. Those tax incentives have succeeded well beyond what anyone at the time could imagine. The original forecast in 2008 was that the state would forgo just $1.54 million a year in revenue, which seemed a good bargain if it brought jobs to poor counties. When the tax incentive was expanded in 2010, the fiscal impact was officially described as “unknown.”
Today we know: The state’s annual fiscal report said the tax abatement last year amounted to $1.6 billion.
That prompted my question: Is this a giveaway or a bargain?
The answer to that question depends on what data centers would do without the tax incentives. If they keep coming, then that tax abatement is very much a giveaway. If they stop coming, then maybe it was a bargain — a clever way to attract jobs and tax revenues we might not have attracted otherwise.
Lucas has clearly decided that the abatement is a giveaway, but that’s a philosophical call. We really don’t know what would happen without that tax incentive. I’ve asked if there are any studies of what data centers would do and I’ve yet to be told of any. Lucas (and other Democrats) simply see a lot of potential revenue that could be collected without those tax breaks and they may be right. They might also be wrong. We just don’t know.
We do know two things, though: Virginia is likely to lose its status as the world’s data center capital even if tax incentives stay in place — and if tax incentives go away, Southwest and Southside Virginia may lose their shot at the jobs and tax revenues that data centers bring.
Let’s take each of these in turn.
Texas will overtake Virginia as a data center capital by 2030
JLL, a Fortune 500 commercial real estate firm, recently published a report that said Texas is adding data centers so fast that within four years the Lone Star State “could overtake Virginia as the largest global data center market by 2030.” The two main reasons: Texas has more land and more energy.
An ironic side note: If that happens, that means data centers will be using more green energy than they are now. Virginia currently generates 8.86% of its power from solar and wind (almost exclusively solar); Texas generates 36.31% of its power from solar and wind. Yes, politically red Texas is a greener state than Virginia, energy-wise.
The JLL report is important because if the data center tax incentive is done away with, someday in the future some politician will surely say that Gov. Abigail Spanberger “lost” the data center crown to Texas. Reality check: If JLL is right (and Texas does have a lot more land and potential wind energy), Virginia’s going to lose its data center status anyway. Given the size of Texas, we could keep the incentive, and keep building data centers, and Texas likely would still surpass us. JLL reports that 64% of the data center construction in the country right now is in what it calls “frontier markets,” meaning new ones, not existing ones. “Key beneficiaries include West Texas, Tennessee, Wisconsin, and Ohio,” the report says.
Will Southwest and Southside ever get a shot at data centers?
Since there appear to be no formal studies of what would happen to data center growth in Virginia if the tax incentive were done away with, we can only guess at what might happen. That hasn’t stopped some, though, from warning of a worst-case scenario: “It would basically stop all data center development in Virginia, including Southwest Virginia,” says House Minority Leader Terry Kilgore, R-Scott County.
Of course, for some in Virginia, that doesn’t sound like a worst-case scenario at all. There are those who would be quite happy if the state never had another data center built. Not all those are in Northern Virginia, either. There are those in the western part of Virginia who are quite skeptical of data centers. There’s a lot of angst in the Roanoke Valley right now over the water demands of that Google complex in Botetourt County.
That said, there are many rural localities whose official policy is that they would love to have data centers. For them, the potential abolition of the state’s data center tax incentives feels a lot like the proverbial rug being pulled out from under them — with legislators from the urban crescent barely noticing or caring what this might mean for some distant rural localities. To those rural areas, this seems a case of urban crescent legislators saying “we’ve got ours, we don’t care about yours.”
This is where the diversity of Virginia makes it difficult to make statewide policy: Data centers are not considered big generators of jobs. The Census Bureau reports that, nationwide, the average number of jobs per data center is just 10.2, a figure that’s half of what it was a decade ago. However, the website Comparably reports that the average wage for a data center technician is $79,885. In Loudoun County, that’s below even the per-capita income ($106,510), which is a lower figure than the median household income. In Wise County, though, that’s higher than both the per-capita income ($45,976) and the median household income ($53,925). A single data center with 10.2 workers making just under $80,000 a year wouldn’t be noticed in Loudoun; in Southwest Virginia, that’s a major economic development announcement.
The developer of the proposed data center in Wise County says it will have 30 to 50 jobs in each of the projected nine buildings, so that’s a minimum of 270 jobs. That alone would make this the second-biggest jobs announcement in Wise County since a 500-job call center a decade ago, according to theVirginia Economic Development Partnership database. Add in 140 to 260 jobs at the accompanying power plant, and the job count rises to 410 to 710, which would either rival or exceed the biggest jobs announcement in the county in the history of that database, which goes back to 1990 — and where the average size of jobs announcements, apart from that call center, has been 22.8 jobs apiece. For a county that has seen its workforce drop by one-third since 2009, a data center complex that might not even register in Northern Virginia would constitute a potentially transformative investment. Without Virginia’s tax incentives, would that project be happening there, or would it be going elsewhere? We don’t know, although some Southwest Virginia legislators worry about what happens without it.
“The end of the data center sales and use tax exemption would be detrimental to our efforts to attract data centers in Southwest Virginia,” says Del. Will Morefield, R-Tazewell County. This is not purely a Southwest Virginia concern. State Sen. Tammy Mulchi, R-Mecklenburg County, told WVTF-FM: “If they don’t want to give tax credits to data centers in Northern Virginia and areas where they don’t want anymore, that’s fine. But in our rural areas, we very much need the revenue from data centers. If our localities want them, then we should be able to offer these incentives. It’s vital.”
In an event this week in Richmond to make the case for doing away with the data center tax break, state Sen. Russett Perry, D-Loudoun County, said: “This industry is not a struggling industry. It is not a fragile industry. The sales and use tax exemption that was created for data centers was originally created to attract this industry, and it worked. The growth has been extraordinary.” That’s absolutely true for Northern Virginia, but not in Southwest and Southside.
I asked Lucas what she thought the abolition of the data center tax abatement would mean for those parts of the state; her office didn’t reply.
Maybe those data centers would never come to Southwest Virginia anyway, so maybe all the efforts to lure them there — the super-low tax rates, the proposals to cool them with mine water — are simply quixotic. If that’s the case, perhaps it doesn’t matter whether those data center tax incentives are done away with, because maybe Southwest Virginia is never going to get a big influx of data centers, or even a small influx. The potential workforce just isn’t there.
Still, let’s go back to the original data center tax abatement law, introduced by Del. Tommy Wright, R-Lunenburg County. He initially introduced the bill to just benefit Mecklenburg County (which later attracted a Microsoft data center complex, whose tax revenues have helped build a new school). By the time the measure made it through the General Assembly, the bill was revised to apply to any locality with an unemployment rate of 4.9% or more, as measured over a quarter.
If that law were still in effect, or if the current proposal was revised to look like the original Wright bill of 2008, it would apply to just 10 localities. Here they are:
Even under the provisions of that bill, much of Southwest and Southside still wouldn’t qualify.
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