Troubling tax breaks for data centers

By Bill MacKenzie. Bill is a former PR practioner and Oregonian reporter.

One.

That’s how many jobs LinkedIn had to promise it would create to get five years of big property tax breaks for the new data center it opened in Hillsboro in mid-November.

LinkedIn told DatacenterDynamics that the major reasons it chose Hillsboro were: (1) access to green energy resources; (2) access to good global communications networks; (3) mild temperatures; and (4) tax exemptions in Oregon’s Enterprise Zones.

The reasons may be right, but don’t believe the order LinkedIn gave. “It is doubtful if this was the real decision-making hierarchy since taxes would be the data center’s biggest operating cost,” DatacenterDynamics said.

In other words, the property tax exemption under Oregon’s Enterprise Zone program, which can be worth millions to qualifying companies, was the major lure.

Enterprise Zones are designed to attract investments by exempting businesses from 100 percent of local property taxes on new plant and equipment investments for up to two years while construction is in process and up to five years after that if they are growing employment in the zone.

Enterprise Zone contracts require that if a data center already operates inside the Zone and applies for benefits or renewal, it is required to increase employment by just ten percent. If a firm locates a new data center in the Zone it only needs to add one employee to be in compliance. Because IT equipment in a data center must usually be refreshed within 5 years, the net effect is that there is no tax in Enterprise Zones.

But is the tax break justified?

Hillsboro’s aggressive marketing of the tax exemption has drawn multiple data centers to the city, all gobbling up valuable land within the urban growth boundary and generating a minuscule number of jobs. Current data center operators include Infomart, ViaWest, Telx, NetApp and T5. LinkedIn’s data center is located in property leased from Infomart.

Infomart says its Hillsboro site benefits from a combination of energy efficiency, inexpensive power, abundant domestic and Trans-Pacific network choices. The most important benefit, however, is the five-year real and business property tax exemption for new equipment and construction. “Since IT equipment is typically refreshed within 5 years, the net effect is that there is no tax, neither sales nor property, on IT equipment in these Enterprise Zones,” Infomart highlights on its website.

That “translates to massive cost-savings for our customers,” Infomart says, and makes Oregon “… the lowest cost state for leased data center operations in the United States.”

Thankfully, Hillsboro taxpayers can easily find out the value of the tax abatement each of the multi-million dollar data centers is getting from the city. That way the public can judge whether the foregone taxes are worth it in terms of investments made and jobs created. Right?

Sorry.

The Washington County tax assessor’s office has determined that the amount the Enterprise Zone property tax exemptions save each data center annually is confidential and exempt from disclosure.

So before everybody gets carried away celebrating LinkedIn’s new data center, and heralding all the other data centers taking advantage of Enterprise Zone tax breaks, a harder look at what’s being given away to all these companies, for not much in return, is in order, particularly given the state’s budget situation.

Maybe this is something the Our Oregon folks could look at now that they’re not so busy after the defeat of Measure 97.

Nov. 22, 2016 Posted in guest column.