News Story

House Members Right to Be Skeptical of Server Farm Favors

Hard to kick the corporate welfare habit

The House Tax Policy Committee plans to take up legislation Dec. 1 to give special tax exemptions to the developers of a data center in the former Steelcase “Pyramid” building outside Grand Rapids, which was recently purchased by a California developer.

This fits a pattern of lawmakers becoming dazzled by promises surrounding a fad industry or development scheme. A “this might just work” feel takes hold in their caucuses — but only if lawmakers give special favors to the developer.

The data center is the latest project dangled before policymakers. But before making any deals legislators should consider the record of similarly hyped projects.

A recent example involved serial campaigns to resuscitate a shuttered Ford plant in Wixom. Before that, in the dot-com bubble of the late 1990s, the online grocer Webvan looked like a sure bet. Both of those went nowhere. Covisint, an online marketplace where auto manufacturers could buy parts, was highly touted by economic development officials in Michigan and other states. But its performance was at best meager, even with $50 million in refundable credits on its side.

When particular projects do get off the ground, they rarely meet expectations. The Granholm administration made a big deal when Google opened an ad sales office in Ann Arbor that (like the Pyramid project) promised 1,000 jobs. Tax credits for only 224 jobs were ever claimed. The Legislature offered hundreds of millions of taxpayer dollars to electric car battery makers, and six years later there are few jobs but several bankruptcies and no-shows.

These examples are typical, not outliers. A 2014 examination of the previous decade’s largest tax break and subsidy program (called MEGA) found that for every nine jobs promised only one was actually created. The state auditor general reported similar findings.

Often an industry or project becomes a commodity sought by politicians in several states. Server farm subsidies have been offered by Washington, New York, North Carolina, Oregon and Utah according to Good Jobs First. Special deals on government-regulated electricity prices are a common giveaway, and Michigan’s rates are higher than they should be.

The bills under consideration give the Pyramid promoters special exemptions from sales and use taxes, and from property taxes levied on business tools and equipment. These particular favors are unfair to other taxpayers, but at least they will not burden taxpayers for cash handouts, as is the case with other corporate welfare programs.

If the Pyramid developers land this deal, residents’ best hope is that exemptions are as far as it goes. 

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.