Benefits of Switch Data Center Likely to be Exaggerated, Unverified

Transparency would end speculation on effects of tax exemption deal — and the deal itself

Currently, there’s a multilayered debate taking place in the Michigan Legislature. At issue is whether the state should give tax exemptions to all data centers; give exemptions to just a single proposed data center near Grand Rapids; or learn from the past and forget about the tax exemptions altogether.

If the deals that produce special breaks like tax exemptions were routinely subject to meaningful public transparency, there might be a good chance of resolving this debate based on facts rather than speculation. That, however, is not the case.

On the other hand, if such deals were routinely subject to meaningful public transparency, it’s likely the entire issue wouldn’t have been raised in the first place.

A Las Vegas-based data company, Switch, proposes putting a large data center in the Pyramid Building near Grand Rapids. But it says it will only do so if the state provides it with tax exemptions. Gov. Rick Snyder bought into the plan and supports it. However, lawmakers are reluctant to give the exemptions to Switch alone and have pursued legislation that would provide them to all the state’s data centers.

Though the legislation currently moving through the Capitol covers all data centers in the state, Snyder still seems to prefer that the exemptions be limited to Switch.

Precisely what will happen next is unclear and could well be determined by heavyweight, gloves-off lobbying and horse trading. Because this issue involves layers of problematic policy considerations, trying to follow it can be confusing.

By comparison, creating tax exemptions for all data centers would be less onerous than doing so for just one company; nonetheless, that would still be a case of targeting tax breaks for a select group of businesses.

What really needs to be asked is this: Why should the state give any data center a special tax break?

Leave aside arguments on the evils of corporate welfare. All that's needed to clinch the argument is to recall the state’s long-standing failure to provide transparency regarding special deals of the type being discussed for data centers. The revelation 10 months ago that taxpayers owe $9.38 billion in liabilities for runaway tax credits of the past — and virtually unmonitored ones at that — has affected the legislative atmosphere.

Open skepticism and hostility are being displayed by many people (but perhaps not enough) toward reopening the whole tax-exemption can of worms. This is more than justified. Michigan lawmakers have wasted an untold amount of dollars on special favor giveaways, including targeted tax exemptions, over the years.

The ultimate cost of these deals has been compounded by the state shirking its responsibility to adequately track and report on their outcomes until it was way too late to matter.

How would the impact of the exemptions for data centers be tracked? Is there any reason to believe they would be accurately scrutinized in a timely fashion?

Until something is done to force the Michigan Economic Development Corporation — and whatever other agencies would be involved — to provide adequate transparency, there is no reason to expect it.

Regarding whether exemptions should be given to all data centers or just to the Switch project, the following needs to be pointed out: Legislators weren’t simply sitting around answering constituent emails one day when — “wham!” — the idea came upon them that data centers ought to get tax exemptions.

It was the Switch proposal that triggered the entire discussion of data center tax exemptions in the first place. Therefore, it follows that if the claims about the Switch deal are dubious at best and will not be adequately tracked and measured, then giving exemptions to all of the data centers makes absolutely no sense.

The weight of evidence indicates the claim that the project could create 1,000 jobs is a significant exaggeration. It appears that the project couldn’t even approach living up to this number if the standard were sustained jobs.

If temporary jobs, such as those involving the initial setup of the data center and visiting employees rotating in and out from Nevada are going to be counted, those supporting the project ought to say so publicly, and enumerate how many of the jobs belong to these short-term categories.

The $5 billion investment Switch claims the project would bring to Michigan needs clarifying as well. It is $5 billion spread out over 10 years, but what does that mean?

Any time a new business opens up in an area it has some positive impact, but how much of Switch’s investment would actually be spent in Michigan? Questions such as this should be asked and the answers should be reviewed publicly and objectively when tax exemptions are being sought.

It bears repeating that there has been nothing special or unusual about the claims made by those promoting the Switch deal. The hype has included the typically vague, advertisement-oriented mumbo-jumbo dished out for years on behalf of other entities seeking special treatment.

And once again the nagging question persists: Is there any reason to trust state agencies to give a true and timely accounting as to whether the project’s claims are fulfilled? The answer to this is a clear, unequivocal “no.”

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.