Would tax break for MI data centers bring economic boon, or climate doom?

• Michigan lawmakers are debating whether to offer tax breaks for mega-size data centers built by the likes of Google and Microsoft. 
• But some fear without more safeguards, data center energy use could cause Michigan to falter on climate goals
• The debate is also reviving discussion about what Michigan gets in exchange for corporate subsidies

A proposed tax break for massive data centers is gaining steam in the Michigan Legislature, but some lawmakers and environmentalists fear courting the energy-intensive industry could undermine the state’s climate goals.

At issue are House bills 4905-4906 and Senate bills 237-238, twin packages that would expand sales- and use-tax exemptions for data center equipment.

Proponents say that would help Michigan compete for the multibillion-dollar data centers that companies like Google and Microsoft are building in neighboring states.

“We're gonna see these things grow, because of the advancements in technology and national security interests,” said Sen. Kevin Hertel, D-St. Clair Shores, and chief sponsor of SB 237. “Michigan simply will miss out on these investments if we can’t get this figured out.”

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But the facilities also require huge amounts of land, water and energy — up to 50 times more per square foot than the average office building — while providing few direct, permanent jobs. Critics argue the bills fall short of ensuring data centers don’t overuse Michigan’s water and compromise its clean energy goals.

“We can put some regulation in place to make sure that these super-large data centers have some specific regulation to make sure that we do not overuse our water, that we do move to green energy that we've already committed to, and that we continue to protect our residents’ ability to pay their utility bills for their use, not for use of commercial enterprises,” said Sen. Rosemary Bayer, D-Keego Harbor, as she voted against the legislation.

Some Democratic lawmakers and environmental groups are pushing for changes that would require data center developers to power their facilities with renewable energy. The latest versions of the bills encourage — but don’t require — such investments. 

“We're talking about some of the most profitable corporations in global history,” said Christy McGillivray, political and legislative director for the Sierra Club Michigan chapter. “They can afford this.” 

The House versions passed through the House last fall. The Senate on Thursday approved SB 237 in a 24-11 vote with bipartisan support and opposition, but held back its companion bill amid the push for changes.

Hertel’s bill, SB 237, now heads to the House for consideration, while the Senate keeps deliberating on its companion. 

Michigan lawmakers first created data center exemptions in 2016 to facilitate the pyramid-shaped Switch Inc. data center outside Grand Rapids, but the incentive is set to sunset in 2035. The new bills would push the sunset date to 2050 (2065 for data centers built on a brownfield), while expanding eligibility to include the massive facilities that tech companies use to power artificial intelligence and social media algorithms.

To be eligible, developers would need to make a $250 million capital investment and create at least 30 jobs that pay at least 150 percent of the local average wage, among other requirements.

Taken together, two separate analyses by the nonpartisan Senate Fiscal Agency estimated the incentives would cost $95 million or more in lost state and local tax revenue through fiscal year 2065-66.

Hertel said dozens of states have such incentives, and “they're seeing huge investments occur.”

“We have potential investments ready to go today in the state of Michigan,” he said, “if we can get these policies passed.”

An unnamed company has expressed interest in building a $3 billion data center on 280 acres near Benton Harbor, a short distance from the shuttered Palisades nuclear power plant that is inching closer to a taxpayer-subsidized reopening. Hertel estimated property taxes from the data center would nearly double the struggling local school district’s budget.

But data center tax breaks have also been criticized for benefitting industry in exchange for few permanent jobs. A typical facility employs no more than a few dozen people, although far more temporary jobs are needed to build and update the facilities.

Michigan’s data center tax-break bills come amid a debate about what Michigan gets in exchange for its corporate incentives. In March, the Senate approved sweeping changes to Michigan’s biggest corporate subsidy programs, seeking to put less money in corporations’ hands and more into “transformative community investments.”

Sen. Ed McBroom, R-Waucedah Township, said he has a “hard time understanding” the strategy of exempting businesses from sales tax, “especially to help this particular sector that's already seemingly so strong and so necessary.”

Other states, from Kansas to South Carolina, are delaying the planned closure of coal-burning power plants while new data centers drive up energy demand. And in Georgia, the industry’s huge energy needs have legislators considering a moratorium on data center incentives.

Nationwide, data center energy demand is expected to double by the end of this decade. 

Hertel said he’s confident Michigan’s newly passed clean-energy laws will ensure any new data centers in Michigan don’t force the state to burn more fossil fuels. Those reforms require the state’s utilities to achieve 100 percent clean energy by 2040, with milestones along the way. But they include “good cause” exemptions if utilities struggle to meet deadlines.

Bayer isn’t convinced. One of several Democratic lawmakers who opposed Hertel’s bill, she said she intends to push for amendments before the Senate votes on its companion.

Data centers could make sense for Michigan, Bayer said, especially if they can be built on the massive brownfields that past industries left behind. But without adequate regulations, she said, they could harm Michigan’s environment, passing water and energy costs onto residential ratepayers.

“The whole point is to bring money into these communities,” she said. But “we want to protect the people, we want to protect the water and we want to make sure the energy is green.”