Report: Government subsidies to attract data centers aren’t worth it

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States and local communities that subsidize the construction of data centers are paying companies way too much to justify the scant number of permanent jobs they generate.

That’s according to a new study, “Money Lost to the Cloud: How Data Centers Benefit from State and Local Government Subsidies.” It will be released Tuesday by Good Jobs First, a Washington, D.C.-based policy research center that promotes government accountability on corporate subsidies.

In fact, the report finds, the bigger the data center deal, the more expensive each job becomes. In 11 “megadeal” subsidies costing $50 million or more, benefiting companies such as Google Inc., Amazon.com Inc., Microsoft Corp., Apple Inc. and Facebook Inc., the cost of each new permanent job came out to an average $1.95 million.

“Data centers could be an important addition to local economies,” said author Kasia Tarczynska, research analyst at Good Jobs First. “However, evidence shows that data centers owned by tech giants enjoy such massive state and local tax breaks as to affect whatever fiscal benefits localities might receive.”

Data center megadeals

Data center megadeals

The study says Google was the biggest beneficiary of the subsidies, getting Oregon, North Carolina and Alabama to pony up almost $700 million. Yahoo got $258 million from New York state. Apple received $410 million in two state deals, and the one with North Carolina resulted in the most expensive jobs, according to Good Jobs First: $6.4 million per job for 50 jobs.

The problem with this math, the study notes, is that those jobs can never pay for themselves in higher taxes. “The average Apple worker will never pay $6.4 million more in state and local taxes than public services she and her dependents consume,” the report says. “The same is true for the costs per job of all of the megadeals profiled here. “

Cloud computing may be driving the next generation of the technology industry, but the massive data center complexes needed to power all the online services employ very few people. Although they employ as many construction workers initially as factories and distribution centers, the study says, on average data centers employ only 30 to 50 permanent workers.

The figures are incomplete, the study concedes. Many states don’t disclose data center subsidy costs, and most local governments, perhaps ironically, don’t make their subsidies such as property tax abatements available online. In 2015, the study notes, the Associated Press estimated that during the past decade, the U.S. data center industry has been awarded about $1.5 billion in subsidies.

The study also doesn’t address another gauge of subsidies’ potential value, namely that the jobs also could provide a small boost to the local economy. However, those benefits are difficult to measure and in any case their impact also might not add up to enough to change the calculus.

Good Jobs First issued several recommendations, calling on governments to disclose during negotiations the costs of subsidies and the companies asking for them, cap subsidies at $50,000 per permanent job and walk away from deals whose benefits don’t match the subsidies.

Images courtesy of Good Jobs First