Legislature backs tax breaks for $5B data center
Lansing — The Legislature worked late Tuesday to approve sales and use tax exemptions that supporters say are designed to attract a purported $5-billion data server center to Grand Rapids and make Michigan a bigger player in a new technology industry.
The two bills passed by identical 61-45 margins as Democrats joined majority Republicans in a split House vote. The Senate quickly followed with 26-12 approval votes and sent them to Gov. Rick Snyder for his signature.
The Switch corporation hailed the legislation and thanked the governor’s office, Republican and Democratic leaders as well as the Detroit and Grand Rapids chambers of commerce for their help.
“We look forward to working in partnership with Michigan to attract the largest companies in the world to the Switch ecosystem here in the Great Lakes State,” said Adam Kramer, executive vice president of strategy for Switch.
The company promised construction “would begin soon” on the data center.
A spokesman for Gov. Rick Snyder said he is always excited when a company wants to invest in Michigan, but didn’t promise the bills would be signed.
“Gov. Snyder has spoken about the need to make sure economic development opportunities area fiscally responsible and make sense long-term,” spokesman Dave Murray said. “Once the bills are formally presented, he’ll be able to give them a thorough review and determine whether to sign them into law.”
The GOP House majority gained Democratic cooperation by amending the bills to end the exemptions if the tax breaks have not created 400 data center jobs throughout Michigan by 2022 and 1,000 by 2026.
Rep. Winnie Brinks, D-Grand Rapids, hailed the bipartisan cooperation to pass the bills and said they “strike a careful balance” that protects revenue and promises attractive technology jobs to keep young workers in Michigan.
“Data is growing faster than anything else on the planet,” said Rep. Jim Townsend, R-Royal Oak, sponsor of the amendment.
But Rep. Earl Poleski, R-Jackson, voted against the bills and argued they’re another example of lawmakers favoring interests that have the muscle to demand them while others are stuck with the bill for government services.
“To pick and choose properties that get exemptions ... is to leave every other loyal taxpayer to wonder who’s serving them and why they must absorb the cost of government,” Poleski said.
The exemptions represent a scaled-back version of original legislation that also would have granted personal property tax exemptions to Las Vegas-based Switch Corp. and other data center operators. Switch proposes a 2-million-square foot data serve campus around an empty pyramid-shaped building that once housed a Steelcase Corp. innovation center in Gaines Township.
By dropping the controversial personal property tax exemption from the data center legislative package, lawmakers are leaving it up to local governments to decide if they want to award that tax break. A coalition of 38 existing Michigan data centers objected that the proposed personal property tax exemptions would have created an uneven playing field favoring newcomers.
Municipalities, which rely on the personal property tax revenue to help fund police, firefighting and other services, can award exemptions worth up to 50 percent of the taxes owed, said Gideon D’Assandro, spokesman for Republican House Speaker Kevin Cotter of Mount Pleasant.
Lawmakers are fast-tracking legislation that would exempt data centers from sales and use taxes to clear the way for Switch to start building in Gaines Township early next year. The company says it will first install servers in the pyramid, then install long server housing structures on three said of it over the next decade.
Switch says it won’t locate in Michigan without the tax exemptions, which are available in 22 other states. Based on a Senate Fiscal Agency estimate, the company and its clients would get tax exemptions worth as much as $150 to $200 million a year.
The House passed revised versions of bills that were approved earlier this month in the Senate. Following the Senate vote, Majority Leader Arlan Meekhof, R-West Olive, said Michigan has to compete with other states offering similar incentives to build a vital new industry.
“It’s like a poker game,” he said at the time. “We’ve got to put the ante in to be able to compete, so we put the ante in and now we’re ready to compete.”
Birgit Klohs, head of west Michigan’s The Right Place development agency, testified in House and Senate hearings that the tax changes would open Michigan’s doors to a crucial new industry.
The Grand Rapids data campus would become a magnet for related businesses, creating additional development and jobs, Klohs said. Switch executives have said 1,000 or more people would work at the data center, about 400 employees of its own and 600 employed by clients such as eBay and DreamWorks, whose data servers would be housed there. It also would lead to thousands of construction jobs during the 10-year build-out of the campus, they said.
The Michigan Chamber of Commerce, which opposes the tax exemptions, called the legislation a “bait-and-switch approach to tax policy.” The chamber says it represents 6,800 Michigan businesses with 1.5 million employees who don’t enjoy similar tax breaks.
“From failed state battery credits to ineffective Hollywood film subsidies, we’ve seen this movie before, and it ends badly for Michigan taxpayers,” Michigan Chamber President and CEO Rich Studley said of the Senate legislation.