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NE: Data center project on hold; some question cost vs. benefits

By   /   August 23, 2012  /   1 Comment

By Deena Winter | Nebraska Watchdog

Google’s data center across the river from Omaha in Council Bluffs, Iowa, employs 200 people and pays an average annual salary of $52,000.

LINCOLN — Kearney has spent about $2 million to buy 165 acres and prepare a shovel-ready “power park” for a $1.8 billion data center a mystery company is considering building.

But now Project Edge is on hold.

Nebraska lawmakers sweetened their pot of economic development incentives earlier this year to match what Iowa could offer the unnamed company — rumored to be Facebook or Apple.

Lawmakers were told the company would break ground in May, but three months later, nothing has happened.

Catherine Lang, director of the Nebraska Department of Economic Development, said Nebraska officials have been in contact with the company periodically. Because of a confidentiality agreement with the company, state officials cannot divulge the company’s identity.

“The project they are or were working on is still working through the company and so I would use the word ‘on hold,’” Lang said. “… It’s an internal company issue, and they’re trying to figure out logistics or issues that don’t involve us.”

She said she believes Nebraska is still “in consideration.”

Kearney Mayor Stanley Clouse said to his knowledge, the company hasn’t decided on a location.

“We’re just kind of standing by, but we’re also marketing the site, too,” he said. “We’ve got too much invested.”

For a city of 30,000 residents with a $66 million annual budget, $2 million is a lot to spend, but Clouse said another company could use the land, if Kearney doesn’t land the whale.

Kearney City Manager Michael Morgan said the city received a $1 million state grant for the project that could help offset costs.

The city paid for research and development, engineering, soil testing and marketing, as well as moved up some other infrastructure work in preparation for Project Edge — even though Clouse said sometimes it feels like the project is “dead in the water.”

“Put it this way, we’ve done everything they’ve asked us to do and then some,” Clouse said. “It’s not like it’s (a) wasted investment.”

Kearney Mayor Stanley Clouse

Will it pay off?

David Swenson, an economist at Iowa State University in Ames, said competition among states for data centers has reached a “goofy place,” where states are over-bidding on projects that don’t actually produce many jobs.

“The idiocy of public policy as it’s evolved over the years is breathtaking,” he said.

Server farms are basically big warehouses full of computers that use huge amounts of electricity and require a lot of water to keep cool. Clouse, who works for the Nebraska Public Power District, said Project Edge would require enough power for another city of Kearney.

Most data centers employ 25 to 200 people.

Everything that goes on in a data center is manufactured and designed elsewhere, Swenson said, drawing precious little from the local economy.

“It’s what I call a sterile company,” he said. “It comes into a place and gobbles something up — water, electricity.”

Governors like to say data centers will be anchors for other high-tech spinoff companies, he said, but “you don’t get spinoffs from data centers. That’s like saying power plants have spinoffs.”

Catherine Lang

Also, using taxpayer dollars to offer incentives to companies that don’t need the help is a bad idea, he said.

“That’s stupid. We’re not getting our money back,” he said. “We’re subsidizing businesses that are incredibly wealthy.”

Incentives should be used in situations where development wouldn’t occur “but for” them, he said.

“We don’t do that anymore,” Swenson said. “Google’s going to put something someplace. They like to put it out here in the middle of the United States for a variety of reasons.”

Among them are cheap land and energy; no earthquakes and hurricanes and tax breaks.

Nebraska lawmakers passed legislation allowing the state to offer economic development incentives on par with Iowa’s for data centers including:

  • Refunds on sales and use taxes,
  • A property tax exemption,
  • A refund on personal property taxes on computers and software.

The company still would pay sales tax on electricity and employees would pay income taxes. The overall impact on state revenue over 14 years was estimated at $12 million.

“Most of the capital is people plugging in machines,” Swenson said. “We’re building this huge shell of a building that’s just crammed full of technology.”

Lang said that’s a policy decision lawmakers can consider.

“It is correct that these do not create the number of jobs given the kind of investment,” she said. “That’s not surprising given what the business is.”

But she said the cost of incentives is worth the benefit.

John Boyd Jr., a corporate site selection consultant at the Boyd Co. in New Jersey, said Project Edge is relatively labor-intensive, with a projected 200 high-paying information technology jobs. The mean annual salary in a data center is about $80,000, he said, and spinoff jobs include those in construction, security and maintenance.

Tight budgets nationwide make incentives more controversial, he said, but compared with “all the things that government wastes money on,” incentives for a data center are a good investment.

Only a handful of states have a sales tax exemption on server farm equipment — a major cost variable — as Iowa and Nebraska do. Right now, a big factor in where a company locates is how much “buffer acreage” they can get for future expansion and security.

Lang said she doesn’t know what power rate Iowa was able to offer, but she believes Nebraska was competitive. A law passed this year allows public power districts to give data centers lower rates by selling them excess electricity.

One drawback for Nebraska is that companies don’t like to be a pioneer. Companies like to go where states have given incentives — although Nebraska has done so with Yahoo —and maintained confidentiality, Boyd said.

Being in the business of selecting sites for almost 40 years, Boyd said often there are last-second logistical considerations or wrangling over incentives. The softening economy could be delaying Project Edge, he said, or a new state may have emerged, such as Indiana, where Gov. Mitch Daniels is “one of the most pro-business governors in the nation.”

Despite those naysayers, Clouse would love to be able to cut the ribbon on a new data center in Kearney.

“We’re still interested,” he said. “We’d love to have it.”

Contact Deena Winter at deena@nebraskawatchdog.org.

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Deena Winter has been a journalist for over 20 years, writing stories for the Northwood Gleaner, Bismarck Tribune, Associated Press, Denver Post and Lincoln Journal Star before joining Watchdog.

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