Officials in Prince William County in Northern Virginia are considering a tax hike that could triple the rate that data centers pay on computer equipment, hoping to offset a potential hike in county taxes and fees. The move comes as the data center market in Prince William is gaining major traction, as the industry expands beyond “Data Center Alley” in nearby Loudoun County.
The tax hike discussion appears to reflect tensions from public controversies over additional power lines to support future data center development. In recent years, Prince William County has sought to craft policies to court the data center industry.
In a Feb. 20 meeting, the county Board of Supervisors voted 6-1 to advertise an increase in the personal property tax rate for computer equipment and peripherals from $1.25 per $100 to $3.70. The $1.25 rate represented an incentive rate to attract technology businesses, while $3.70 is the rate paid by residents.
Advertising the rate hike allows for discussion of the proposal. The board could opt for a smaller increase, or none at all. A public hearing on the budget is scheduled for April 10, with the supervisors scheduled to finalize the county budget on April 24.
“We have time to talk this out with the industry and residents,” said Board Chairman Corey Stewart, who proposed the tax hike.
“There’s no advantage to having a data center other than the revenue that they generate,” Stewart said at the Feb. 20 meeting. “That’s it. They produce very, very few jobs. There are some negatives associated with data centers as well. They gobble up some of the most commercially valuable property in the county. They drive demand for new power lines, like we’re seeing in Gainesville and the Haymarket area.”
Stewart is emerging as a critic of data center development in Prince William County. A Republican who made headlines during his 2016 run for Governor, Stewart is currently campaigning for the Senate seat held by Democrat Tim Kaine.
Economic Benefits Debated
In recent years, state and local governments have seen data centers as desirable projects. Thirty states now offer economic incentives for data centers, up from just five in 2008. But tensions around data center development are being seen in a growing number of communities.
This was one of the issues highlighted in our recent Data Center Frontier forecast, The 8 Trends That Will Shape the Data Center Industry in 2018, in which we noted that we could “expect to see more headlines about data center controversies in 2018,” including in Northern Virginia.
Prince William County is home to 31 data center projects and 3.5 million square feet of data center space, according to the county Department of Economic Development. In the past year, the county has welcomed several huge new data centers, including campuses for CloudHQ and Iron Mountain and additional sites for Amazon Web Services.
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The county has worked to attract data centers in recent years. “This is a high-performing growth industry that supports high-paying STEM-related jobs and a talent pipeline for other fast growing enterprises,” said Jeffrey Kaczmarek, Executive Director of the Prince William County Department of Economic Development, in an announcement last year touting the county’s status as a “magnet for data center projects.”
‘Disproportionate Impact’ on Tax Base
The industry’s economic impact on Prince William County was highlighted in a report issued last month by the Northern Virginia Technology Council, which noted that although data centers aren’t massive job generators, they have positive impacts on the local economy.
“Because data centers are very capital-intensive, they have a disproportionate impact on local property tax revenue, while making minimal demands on local services,” said the report from Mangum Economics. “Based on data from Loudoun County and Prince William County, this combination provides a greater than 8-to-1 benefit to cost ratio, enables these localities to draw $13.4 million a year less from the state general fund for school budgets, and reduces local property tax rates from what otherwise would be required to fund county operations.”
The county says the industry has created 912 jobs and yielded $6.2 billion in capital investment. The Mangum report said that in 2016, data centers had a fiscal benefit of $21.5 million in Prince William County, compared to a fiscal cost of $2.5 million.
Stewart noted that the drawbacks of data centers “can be forgiven if they’re providing enough income to the county and generating revenue.” To accomplish that, Stewart proposed eliminating the incentive rate on computer equipment, noting that companies in nearby Loudoun County, which has about 70 data centers, pay the same $4.20 per $100 tax rate as local residents.
“If we make this fair, and charge them the same amount of money as we’re charging our residents, that would generate approximately $20 million annually for the county,” said Stewart. “That would allow us to decrease the property tax rate and wipe out any property tax hike for 2019.”
A Competitive Issue in Attracting Data Centers
The personal property tax rate can be an important factor in data center site selection, and there’s evidence that Prince William’s low rate has helped the county win data center projects. Last year Loudoun County considered lowering its personal property tax, citing the loss of projects to Prince Williams and other areas. Loudoun ultimately decided to leave its rate at $4.20.
But if Prince William raises its rate, it could impact the analysis between the two counties. The only Prince William supervisor to vote against considering the new rate was Martin Nohe, who said the idea was anti-business.
“I think it sends exactly the wrong message to the business community, and I think it makes it dramatically more difficult for us to attract the type of businesses that we want to bring into this county,” said Nohe. “I don’t think the way to increase our commercial tax rate is to raise taxes on businesses. I think we need to increase our commercial tax base by growing our business community. I just don’t think that tripling a commercial tax rate is the way to do it.
“The message we’d be sending is ‘bring your business here, and then once you get here we’re going to triple your taxes,” Nohe added. “I don’t think it’s the right thing to do, and I can’t support it.”
Supervisor Jeanine Lawson, who in September hailed Iron Mountain’s investment at its Manassas data center as “manna from heaven,” noted that many data centers are in her district, but voted in favor of advertising the rate hike. “I am open to the discussion,” Lawson said. “I’m not making any commitments, but definitely feel it is worthwhile to have this discussion.”
Period for Comment, Discussion
County officials emphasized that last week’s vote gives the supervisors the leeway to raise the rate, but no decision has been made.
“It is important to note that there is currently no recommendations before the Board for any changes to the proposed budget,” said Jason Grant, the Communications Director for Prince William County. “The board approved a resolution to advertise tax rates, that the board will then discuss and consider. The advertised rate sets the ceiling for what they ultimately are permitted to adopt, but it is not a proposal to adopt the advertised rate. Some (supervisors) voted to allow the rate to be advertised in order to have discussion on the matter and to give them flexibility as to what rate they may ultimately adopt.”
Grant didn’t know whether the tax rate issues had been discussed with any of the data center businesses operating in the county, but noted that interested parties were welcome to attend the Board of Supervisor meetings and address the board.
“We understand that tax rates, certainly, are one point of consideration for businesses,” Grant added. “If there are any changes to that tax structure, we will then analyze what impact, if any, those decisions have on our ability to attract certain market sectors and shift our efforts accordingly as needed.”
In recent years, Prince William has actively marketed itself as a destination for data center development. In May 2016, the county created a Data Center Opportunity Zone Overlay District, aligning development with planning priorities and properties where supporting infrastructure is readily available or easily provided. The supervisors also approved an expedited review process for electrical substations required to support data center developments.
At the time, Stewart expressed support for the initiative. “Data centers are vital to our community,” Stewart said. “They provide significant revenue to help offset the residential tax burden for our residents. This provides the type of certainty and commitment that data center clients need as they contemplate future development in Prince William County.”
The Haymarket Controversy
Data centers in Prince William may not be feeling “certainty” about the supervisors’ interest in tripling their personal property tax rate. So what has changed? One variable is the impact of a long-running battle over a proposed power line to support the expansion of an Amazon Web Services campus in Haymarket, which Stewart mentioned in his comments last week’s meeting.
Dominion Virginia Power’s plan for an overhead 230kV line has been opposed by a group of local residents, who have termed the project a “very expensive extension cord” for Amazon. The Coalition to Protect Prince William County wants Dominion to divert the power line or bury it in sensitive areas close to homes and wildlife. The state of Virginia will has been considering arguments and motions in the case for several years, and is continuing to hold hearings on the final route for the power line. The Virginia General Assembly is also considering a bill that would require Dominion to bury the power line.
At one point last year, Dominion ran full-page ads in local media and an op-ed in the Washington Post criticizing Stewart, saying he blocked a route favored by state regulators. Stewart responded that 97 percent of the line’s electricity would go to Dominion’s data center customer, and just 3 percent to residents.
Land Use Priorities Debated
Stewart also appears to have taken note of a November presentation at the local chamber of commerce by Stephen Fuller, an economist at George Mason, who argued that dedicating land to data center development was a misstep.
“Remember how big a computer was 15 or 20 years ago? I wonder how long data centers will survive,” Fuller said. “It makes me think they could be overbuilt, because you don’t know what to do when you’re done with them. It seems a shame to put them in places we know you will need in the long haul.”
Fuller doesn’t appear to have addressed the glaring flaw in his argument – that as computers have grown steadily smaller and more powerful over the past 20 years, the need for data centers has soared, with powerful growth continuing through multiple generations of newer and more efficient processors and memory, as well as the growth of virtualization.
In December, Stewart led an effort to have the county economic development team study potential changes to a “data center opportunity zone” created by Prince William, saying that data centers were buying up prime properties that could be used to attract other types of businesses.
As Prince William considers its budget and tax decisions, the county’s process allows ample time for feedback from stakeholders, Grant noted.
“Anyone may come to the Board of Supervisor meetings and address the Board during publicly during Citizens’ time,” said Grant. “The public hearing on the Budget and Tax rate is scheduled for April 10. All citizens and business leaders are welcome to speak during the public hearing. The Board will mark-up the proposed budget with recommendations on what to include in the final fudget. The board will ultimately adopt a budget, along with adopted tax rates, on April 24.”
See the Board of Supervisors web site for more information.