News Story

Flimsy Job Projections Used to Promote Selective Business Tax Breaks

Data center jobs unclear and legislation may not be enforceable

Gov. Rick Snyder will likely sign into law legislation that gives data centers special tax breaks, on the condition that they create 400 jobs by 2022 and 1,000 by 2026. But the legislation creating the exemptions on sales and use taxes does not require any new jobs to be created in the coming year, and it is unclear how the industry's performance at job creation will be verified or tracked.

Tricia Kinley, the director of tax and regulatory reform at the Michigan Chamber of Commerce, said that it was difficult to take seriously the amendment that added the job-creation requirement.

“It was a flimsy amendment and we think it probably isn’t even enforceable,” Kinley said. “This whole thing is a huge disappointment. We don’t see any merit in it. Unfortunately, all it took was a few people saying this could be good and the Michigan Legislature moved at warp speed to get it done, leaving it up to rest of Michigan’s businesses to pick up the tab.”

“What we’re talking about here are data centers, which is an industry primarily concerned with housing servers,” Kinley continued. “This isn’t an area in which there’s a great potential for job creation. At some future point, it could probably mostly be covered remotely.”

Gov. Rick Snyder, a supporter of the special tax break plan, is expected to sign the bills into law. Rep. Jim Townsend, D-Royal Oak, offered the amendment requiring the job creation targets being used to justify the exemptions. According to a well-placed source, the Snyder administration coordinated the wording of the amendment with Townsend.

Tax exemptions for data centers became a legislative issue only a few weeks ago, and it all started when Switch, a Las Vegas-based data company, proposed putting a large data center in the Pyramid Building near Grand Rapids. Switch offered its proposal on the condition that it receive sufficient tax breaks. Snyder lent his support to the project and most West Michigan lawmakers fell in line.

On Nov. 10, Senate Bill 616 was introduced by Sen. Tonya Schuitmaker, R-Lawton, and Senate Bill 617 was introduced by Sen. Peter MacGregor, R-Rockford. But the Legislature balked at moving ahead with the tax exemptions for Switch alone and it began discussing giving them to all of the state’s data centers.

Another factor that caused some lawmakers to hesitate was the revelation made 10 months ago that state taxpayers were on the hook for over $9 billion in liabilities from tax exemptions handed out during the second term of former Gov. Jennifer Granholm. Still, both bills garnered more than enough votes. In the House, 32 Republicans joined 29 Democrats in support of the bills. The votes were also bipartisan in the Senate, where the measures passed 26-12.

Proponents of the breaks for Switch claimed the project would create as many as 1,000 jobs over 10 years. But the two bills sent to the governor count jobs created by the entire data center industry by Jan. 1 2026 as meeting the requirement for tax exemptions.

The Switch project was, backers claimed, going to bring a $5 billion investment to West Michigan. There is nothing in the legislation about verifying investments made either by Switch or the data center industry.

Neither Schuitmaker nor Townsend responded to phone calls requesting comment.

When MacGregor was asked how the job creation numbers would be tracked, he said, “That was not my amendment; it was put on in the House." He added, “It was just described to me and I said I was OK with it. It’s Treasury’s job to report the jobs to the Legislature. I’ll do my best to track them as well.”

“This is important legislation that will encourage more investment by high-tech companies in Michigan,” he continued. “It makes our state able to compete with the other Great Lakes states.”

When asked about the fact that the jobs requirement could be satisfied by the entire industry, MacGregor said, “That’s right, it’s not just Switch now. As the bill sponsor, I did my due diligence in the Senate, but I can’t say what more was done in the House. I don’t know all the details, but I can find them out for you.”

In the past, the Michigan Economic Development Corporation's ability to accurately keep tabs on the number of people employed by companies receiving subsidies has been drawn into question, particularly since those companies may face incentives to game the system. What, then, of the possibility that 1,000 data center jobs would be in place on the required date of Jan. 1, 2026, only to dwindle to a lot less over the next month, when presumably they were no longer being tracked or measured?

“I really can’t speak to whatever MEDC has done,” MacGregor said.

If Switch's Nevada-based employees fly into Michigan a few days a week, will they be counted as jobs created by Michigan data centers?

“Not as far as I’m concerned," MacGregor said. "I think they’d have to, at least, have a Michigan driver license. If they (the data centers) don’t do what they’re supposed to do we can change it. I believe this is good legislation and, seriously, I’ll find out more of these details and let you know what they are.”

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.