Michigan Gave Away Tens of Millions for Little in Return

Data center tax exemptions are mostly flash

In mid-December when the Michigan Legislature passed a law giving data centers tax exemptions, it set a job creation requirement of 400 jobs by 2022 and 1,000 by 2026. That gives the entire data center industry in Michigan 10 years to create roughly as many jobs as would be expected if just four new big box stores, such as Sam’s Club, Meijer, or a Super Target store opened for business.

According to the retail industry, on average, each new big box store creates about 250 jobs, some less, some more. That means the 400 jobs the data centers are collectively supposed to create over the next six years might be fewer than would be employed at just two of these types of retail stores. For the purposes of comparison, Meijer alone has 2,175 employees in just the Lansing area.

The impetus behind the Legislature’s decision to give data centers the tax breaks started when Las Vegas-based data company, Switch, proposed putting a large data center in the Pyramid Building near Grand Rapids. Switch wanted tax breaks from the state to cement the deal and Gov. Rick Snyder, along with most West Michigan lawmakers, supported the idea.

More than a few lawmakers opposed giving the tax breaks to a single company. In some cases this resistance emanated from philosophical outlook; in other cases, lawmakers appeared to still be feeling the sting of the $9.38 billion in liabilities taxpayers recently discovered they owed due to tax exemptions mostly handed out under former Gov. Jennifer Granholm.

Following several days of wrangling, sufficient votes were garnered in the House and Senate for a compromise giving all of the state’s data centers use tax and sales tax exemptions. According to well-placed sources, establishing the job creation requirements was deemed necessary to secure the needed votes. Meanwhile, the overall plan also seems to include Switch continuing to pursue further tax breaks available at the local level.

“There will no doubt be some jobs if this project gets off the ground,” said James Hohman, the assistant director of fiscal policy at the Mackinac Center for Public Policy. “Yet changing state policy for this one project is not going to have noticeable effects on the 4.3-million job state economy.”

Seemingly, virtually any business could advance the same claims the Switch project made in its quest for tax breaks. In addition to its job creation projections, the project boasted the jobs it would provide would be “well-paid.” Based on information available through the U.S. Bureau of Statistics, big box stores could make the very same claim. Also, a major claim made by supporters of the Switch project was that it would attract additional high-tech companies to the state and the region. Again, big box stores — which are known to be located in clusters — could reasonably claim they’d attract other businesses similar to their own as well.

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.