Data center tax breaks could cost Mich. up to $30M

Gary Heinlein
The Detroit News

Lansing — The House Fiscal Agency estimates the state would lose $20 million to $30 million a year if lawmakers approve tax exemptions they’re considering in connection with a proposed $5 billion data center development near Grand Rapids.

Those losses would affect the School Aid Fund supporting K-12 schools, state revenue sharing that helps fund local government services and the general fund — the state’s main checkbook paying for services such as prisons and higher education, according to the nonpartisan legislative advisory agency.

The estimates came as proponents began their pitch for tax breaks to land a 2-million square-foot campus proposed at a vacant pyramid-shaped building near Grand Rapids to house data servers and related technology.

“We become drivers of job creation,” Switch corporate vice president Jason Mendenhall told a House committee opening hearings on tax exemptions his company wants before investing its money in west Michigan rather than another state.

The Las Vegas-based company, launched in 2000, has “a 15-year track record of doing exactly what we say we’re going to do,” Mendenhall testified before the House Tax Policy Committee.

It will build a facility in Michigan only if it’s exempt from the state’s 6 percent sales and use taxes and personal property tax. He said other states such as Indiana, Illinois, Minnesota and Wisconsin “all have a zero sales and use tax and (on) personal property.”

Lawmakers are considering recently introduced bills that would hand the tax breaks to Switch and other similar firms in Michigan that house data servers for corporate clients.

The fiscal agency said its estimates apply to about 40 data centers and the proposed Grand Rapids-area facility. State government would forgo increasing amounts as the number of tax-exempt data centers continued to grow, according to its report.

Switch proposes to turn the Grand Rapids area’s pyramid office building in Gaines Township, once the innovation center for Steelcase Corp., into a campus of buildings containing data servers. Its clients include Amazon, Boeing and DreamWorks.

Critics of the proposal include U.S. Rep. Justin Amash of the Grand Rapids area, the free-market Mackinac Center for Public Policy and the state’s chapter of Americans for Prosperity, all of whom object to tax breaks favoring one company or industry alone.

“We want everybody to pay lower taxes,” Mackinac Center policy analyst Jarrett Skorup told The Detroit News last week. “We don’t think government should decide who pays more or less.”

Republican Rep. Gary Glenn of Midland, a free-market advocate who sits on the committee, said he hasn’t taken a position yet on the legislation. He said making it broad enough to include more companies is a step in the right direction.

Switch’s first data center in Las Vegas, similar in size to what’s proposed in Grand Rapids, has grown from scratch to more than 500 employees since 2000, Mendenhall said. The company is building a second campus of double that size in Reno, he said.

A spokesman said Gov. Rick Snyder still is evaluating the proposal.

In 2011, the governor and the Legislature stopped awarding open-ended tax credits to companies that promised to create jobs and invest in Michigan. The state is saddled with $9.38 billion in tax credit refunds owed to businesses over the next 16 years.

A stepped-up cashing in of credits resulted earlier this year in a $325 million midyear budget cut, causing the Snyder administration to negotiate amended tax deals with Ford Motor Co. and Fiat Chrysler Automobile NV to lessen their impact on the budget.