The Office of Governor Bob McDonnell of Virginia issued a press release today trumpetting their success in convincing Microsoft to build its latest Gen4 Data Center in the state. Given huge gulf between the real long-term local economic benefit of a data center like this and the content of the press release I am left to conclude that either A) The Governor really does not understand the economics of these things or B) He really does understand the true economic impact and the press release is a cynical attempt to fool the voters.
For other politicians who might be tempted to spend tax payers money to secure the locations of a data center here are some things you really do need to understand:
- Today’s modern global data centers do not create any meaningful number of jobs. Modern global data centers are remotely operated which means that even the few jobs that are created are not high skilled software or computer engineering roles. The type of jobs created tend to be in the building maintenance, HVAC, electrical engineering and security domains.
- There’s a high price to be paid for securing relatively few jobs. The fifty number touted by Virginia sounds about right. However, from the Governor’s press release, it sounds like at least $6.9 Million of direct incentives and probably an unspecified amount of long-term commercial property tax exemptions were used to secure those 50 jobs. Is that a good rate of return?
- When a technology company says they will invest $499 Million in building a new data center that does not mean they are investing $499 Million in your state. Far from it. Most of that cost will be in the computing infrastructure, communications, and other electrical machinery. That equipment is by and large not built in the state where the data center will be located. In fact a lot of it will be sourced from outside the country creating jobs and employment elsewhere, but not in your state.
- Modern data centers are 'Shells' of a building. Microsoft’s Gen 4 data centers employ pre-assembled container 'Lego Blocks' which are rolled onto a concrete slab and plugged into power, cooling and data pipes. If they could get away without building anything other than the concrete slab and HVAC containment buildings they would and in years to come they will. This all means that very few construction jobs will be created and certainly not any that require significant new up-skilling of your labor force.
- On a positive note a modern global data center is one of the most dense power consumption facilities around. That is why many sites are selected based on access to hydro-power where the cost of energy and distribution challenges can be kept to a minimum. It is possible that the location of a major global data center in Virginia will create the downstream need to upgrade the state’s electricity distribution and generation infrastructure. Being forced to do this obviously creates ancillary benefits for other company’s but again at what price?
Politicians really do need to understand the reality of these things. It is far too easy to give away the tax payers money today on the assumption of major downstream economic benefits tomorrow. In the case of data centers those benefits are likely to be few and far between.