America houses a vast industry devoted to finding locations for new industry. Magazines like Site Selection and Area Development help corporate middle managers figure out where to build everything from warehouses to auto factories. State and local economic development officials compete fiercely for these and other projects using tax incentives, a practice sometimes derided as “smokestack chasing.”
Data centers are just the most recent type of economic development project. Like every other kind, they bring jobs and money to an area, along with some downsides, such as noise and traffic. That’s what makes the heated opposition that data centers have generated so perplexing. If you consider data centers on the same terms as any other kind of local economic development project, they look like one of the better deals around.
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The reason data centers have suddenly become a subject of heated debate is that there are suddenly many more of them. Spending on their construction grew by over seven times in just four years. J.P. Morgan estimates the total capital expenditures of the five biggest “hyperscalers”—the tech companies building the centers—will reach almost $700 billion this year, or over 2 percent of the entire U.S. economy.
But construction spending on typical manufacturing projects is, at least for now, far ahead of that for data centers. All of these projects need to be located somewhere—but they haven’t generated similar levels of local opposition as data centers. A $6 billion Hyundai steel mill is going up in Ascension Parish, Louisiana. Bay Minette, Alabama, is home to an aborning $5 billion Novelis aluminum plant. Many semiconductor plants or “fabs” are coming online that cost of tens of billions of dollars.
As with data centers, some are upset about the tax breaks provided for these manufacturing projects. Louisiana promised almost $2.6 billion in tax incentives and infrastructure upgrades to attract the steel mill. Alabama promised around $260 million in state and local tax abatements to get the aluminum plant, along with some infrastructure improvements.
While state and local governments sometimes negotiate overly generous deals with industry, critics often fail to note that almost all industries pay out more than they take in. Just as at the federal level, corporations pay an immense amount of taxes but use relatively few services. Michael Greenstone, Enrico Moretti, and Richard Hornbeck have studied how counties that “won” big plants, often with subsidies, compared with those that lost them after trying. They found that the winners saw increased wages, productivity, property values, and even government revenue: all signs that winning provided an overall benefit, though getting the plants didn’t come free.
The large scale of data-center projects, which often cost in the tens of billions of dollars to construct, means they can bring in much more tax revenue than other types of development. Morrow County, Oregon, has used time-limited tax exemptions to attract data centers. Three of its five centers are still tax exempt, but the other two already pay about a third of property taxes in the county, in addition to supporting special community projects. Places such as Loudoun County, Virginia, or Quincy, Washington, now get about half their tax revenue from data centers.
One advantage of every local development project is that it brings jobs. Some data-center critics note that they create at most a few dozen to a few hundred long-term jobs—unlike, say, a big auto plant, which can bring in thousands. But fewer jobs also mean data centers need fewer local services, such as police, and create less traffic, thus requiring less roadwork. The local fiscal costs of data centers are lower than for many other projects, further increasing the net benefits for local governments.
All economic development has some negative effects, including pollution. Even the “green” Hyundai steel mill in Louisiana will produce hundreds of tons of nitrogen dioxide and carbon monoxide emissions per year. Communities still seek out these plants because of all the other benefits they bring.
Data centers have some of the lowest pollution effects of local projects. They don’t have big smokestacks—just very localized noise pollution, along with some occasional fumes from backup generators.
Every community should decide for itself whether the tax breaks or other costs of attracting various projects are worthwhile. But if a community is looking for development, data centers offer some of the best benefits—and the fewest costs.