One data center tax break bill clears committee, others stall

By: - October 31, 2019 3:09 pm

Legislation aimed at growing Michigan’s data center industry via various tax exemptions continues to create consternation among school advocacy groups and lawmakers on both sides of the aisle. 

Michigan Capitol | Susan J. Demas

The state House Commerce and Tourism Committee on Thursday advanced Senate Bill 455, legislation that would further exempt Switch, a data center company with a facility in southern Kent County, from certain taxes and assessments, according to the nonpartisan Senate Fiscal Agency.

Following a 6-4 vote with two Democrats and two Republicans each voting against the bill, the legislation will now move ahead to the second committee in the House process, Ways and Means, for further consideration. 

Sponsored by state Sen. Jim Stamas (R-Midland), the legislation has already cleared the full state Senate. 

Meanwhile, state Rep. Steve Marino (R-Harrison Twp.), who chairs the Commerce and Tourism Committee, opted to hold off on votes to advance House Bills 5127 and 5128, sponsored by state Reps. Bronna Kahle (R-Adrian) and Rebekah Warren (D-Ann Arbor), respectively. 

As the Advance has previously reported, the bills would exempt large “enterprise” data centers — with at least $250 million of capital investment and at least 30 permanent jobs — from paying sales and use taxes.

School groups, unions and members of the committee still have concerns about the legislation, Marino said, leading to another delay in a vote. 

“It looks like there’s interest on both sides of the aisle,” Marino said of the bills. “Some people want assurances and some tighter language, so we need to take some more time to do that.” 

Rebekah Warren | Senate Democrats photo

The bill sponsors say that implementing the tax policy is the only way Michigan can compete on a level playing field with other states when it comes to attracting data centers. 

“There is no lost revenue to the School Aid Fund,” Warren said. “There’s only revenue to be gained by putting out the welcome mat to the industry.”

The House Fiscal report somewhat disputes that, but notes that “without knowing the amount of capital investment that would qualify under the bills, the extent of the revenue loss cannot be determined.”  

For some, however, incentivizing data centers at all just makes for bad policy. John Mozena is a Detroit-based critic of state economic development programs and serves as president of the Center for Economic Accountability, a research group on such programs. 

Mozena authored a column in the Hill this week and labeled data centers, along with stadiums and distribution centers, as the top three “dumb things” that states give incentives. 

Data centers, Mozena writes, are expensive to build and produce few jobs because they’re little more than warehouses for computer servers and other equipment. 

“Data center companies look for places that have the right network infrastructure, cheap energy, cheap land and few natural disasters,” Mozena wrote. “They then hit up governments for subsidies, and politicians who love to take credit with voters for ‘high-tech jobs’ gladly comply.”

Tim Greimel, a former House minority leader and now a lobbyist for a Michigan chapter of the American Federation of State, County and Municipal Employees (AFSCME), also opposed the bills because they would extend tax breaks to 44 “colocated” data centers, which have their flag already planted in Michigan. 

Tim Greimel

“When it comes to those 44 already existing colocation data centers, they don’t need additional tax breaks. They already made their investment here,” Greimel testified on Thursday, estimating that the proposed exemption could cost the state’s School Aid Fund tens of millions of dollars over several years. 

Presently, almost three-quarters of the state’s sales tax revenue and about one-third of use tax gets sent to the School Aid Fund, according to the nonpartisan House Fiscal Agency. 

Improving Michigan’s underfunded K-12 schools has been a key Democratic priority and education groups are skeptical of claims by the bills’ sponsors that the Fund would be held harmless. 

David Randels, a lobbyist for Oakland County Schools, called the claim “literally mythic.”

“And if companies who are running these data centers, want to participate in our economy, the Michigan way is to pay sales tax on your purchases,” Randels said. “That’s what supports our schools. So we are very concerned about the continual cuts to our revenue sources to support our schools and we think the evidence is very clear that that is not working.”

Marino, the committee chair, told the Advance that he’s not surprised the state’s educational advocacy groups are opposed to the data center bills, adding that he believes that opposition comes more from a “philosophical base,” and a belief that schools have been wronged in the past by similar deals.

“They’re worried about a slippery slope or that something is broken down the line,” Marino said. “I don’t know if the [education] community is ever going to come around and I hope this isn’t a new automatic ‘no’ on any type of favorable tax treatment in order to lure businesses here. But we’re trying.”  

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Nick Manes
Nick Manes

Nick Manes is a former Michigan Advance reporter, covering West Michigan, business and labor, health care and the safety net. He previously spent six years as a reporter at MiBiz covering commercial real estate, economic development and all manner of public policy at the local and state levels.