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Matthew Hepner and Robin Toth: Statewide data center incentives needed to preserve Washington’s edge

Sat., Feb. 17, 2018

By Matthew Hepner and Robin Toth

Legislation proposed in Olympia will extend Washington’s existing data center investment incentives statewide. Expansion will make Washington’s metro areas more attractive for data center location, but everyone, regardless of where you live, should support passage.

Data centers touch virtually every aspect of our lives, including education, health care, financial services, e-commerce, manufacturing, communications and entertainment. They are the foundation of the digital economy, increasing productivity and enabling business and personal transactions. With increasing reliance on cloud computing, artificial intelligence and the “internet of things,” their importance continues to grow.

Washington’s vibrant and robust technology sector benefits everyone whether you work in tech or not. Tech expansion has driven more than half of the state’s job growth since 1990 and generates revenues that fund schools and other public services.

Despite this strong growth, Washington has lagged in IT infrastructure investment. For our state to remain an important technology and economic hub, we can’t afford to take our success for granted. As with roads and utilities, infrastructure drives competitiveness, and over time we will feel the impact of lagging investment. Without incentives to attract investment statewide, Washington risks losing its competitive edge.

Today, Washington provides incentives for data center investments in rural communities. These incentives have been extremely effective in spurring investment, job creation, infrastructure and economic development.

Construction of data centers in rural communities has ebbed and flowed in direct relation to the state incentives provided. With incentives in place, rural Washington locations have been competitive. When they were temporarily rescinded, construction migrated to Oregon and elsewhere.

Quincy’s experience demonstrates the great benefits these incentives provide: hundreds of millions in investment, job creation, higher wage rates, infrastructure development and dramatically increased property tax collections – while reducing tax rates for local residents.

For other communities to enjoy similar benefits, we must recognize the West’s highly competitive market for data centers, including Texas, Nevada, New Mexico, Arizona, and our closest neighbors, Idaho and Oregon.

While Washington’s power costs once provided a major advantage, many markets have enacted special incentive rates to reduce or eliminate that advantage. Currently, power prices in urban Washington and urban Oregon are similar.

Beyond power costs, the next key cost component and the largest differential is taxes. Washington’s metro areas aren’t competitive on that front, because sales taxes add approximately 10 percent to the total equipment cost per refresh cycle.

In contrast, Oregon has no sales tax. Additionally, the Portland suburb of Hillsboro has invested heavily in communications infrastructure and created an “enterprise zone” offering other incentives to encourage data center investment. Since 2011, it’s estimated that over $1.9 billion has been invested in data centers there, while the Puget Sound region, with a larger population, economy and tech sector, has seen roughly one-tenth that amount. Many of the largest U.S. data center operators, foreign IT companies, and end users have already located in Hillsboro.

Extending existing incentives statewide would help stem this tide by making Washington more attractive to the widest range of data center owners, operators and end users.

Companies implement different types of data center operations in different locations. If Washington offered attractive locations for their full range of facilities, we could draw more new investment and allow clients to centralize all types of IT operations within our state.

Rural communities would become even stronger competitors for large, enterprise data centers operated by a single company. Meanwhile, Washington’s metro areas could compete for co-location facilities that house multiple end-users, and need to be closer to staff resources and other company facilities.

That means more jobs for construction trades, more consistent employment for vendors and service providers, and more property and utility taxes to fund public services. That would be good news for everyone in Washington.

Matthew Hepner is executive director of the Certified Electrical Workers of Washington. Robin Toth is vice president of Greater Spokane Incorporated.