Big data outfits demanding state subsidies
Thursday, Apr 13, 2017 - Posted by Rich Miller
* From the Illinois Policy Institute’s news service…
During a more-than three hour House Revenue and Finance Committee hearing Wednesday in Chicago, the data center industry asked for breaks on sales taxes and job creation. Industry leaders said it would make Illinois more competitive with neighboring states that do offer the incentives.
House Majority Leader Barbara Flynn Currie, D-Chicago, wasn’t a fan of the idea.
“I feel very uncomfortable that we are in a situation where if we want to compete, we may have to offer special deals to this group but not to that group, and at the end of the day I think we’re looking at something I think is hard for me to define as other than a little bit of corporate welfare and a little bit of corporate blackmail,” Currie said.
State Rep. David Harris, R-Arlington Heights, also questioned why one industry should get special preference over another.
But Phil Horstmann from data center company Ascent said without incentives, he doesn’t expect the industry to grow in Illinois.
“The simple fact is that it’s not economically viable to come here anymore,” Horstmann said.
Lance Alvarez, who helps select data center sites for Microsoft, said the company does “a tax analysis for all states and Illinois ranks in the bottom 3rd. Currently, Indiana, Ohio, Michigan, Iowa, Missouri and Minnesota offer incentives to attract data centers.”
He said Illinois doesn’t provide a level playing field to attract multi-billion-dollar data center investments.
For those who don’t know, a data center is “a facility composed of networked computers and storage that businesses or other organizations use to organize, process, store and disseminate large amounts of data.”
And, seriously, Microsoft needs a tax subsidy to open up data centers in Illinois? Microsoft, which is spending $2 billion a quarter on data centers wants help from Illinois government to compete with all the existing data centers in the Chicago area, like this one? They need a subsidy when as of last year, new and planned construction was pretty darned robust? At a time when Chicago was experiencing “double the national average growth in revenue”?
Or did the industry overbuild?
Either way, we need a whole lot more research on this. If there’s demand, you’d think somebody would build. But if a subsidy is needed, how much would it cost taxpayers?
- RNUG - Thursday, Apr 13, 17 @ 12:27 pm:
Just cut all business subsidies and cut the business income tax rate by about the same amount. That will reward all current businesses in the State.
- A Jack - Thursday, Apr 13, 17 @ 12:30 pm:
Chicago is a main Internet hub. So if they want the speed, they will build here regardless of the incentives.
- SOIL M - Thursday, Apr 13, 17 @ 12:33 pm:
Rep Currie has said something I actually agree with. The State shouldnt give preference to one corporation or industry over another. If the rate is too high, lower it for all. If the rate is fair it is fair for all.
- CivicWhitaker - Thursday, Apr 13, 17 @ 12:35 pm:
It’s an old post (from 2013!) from the city about why so many data centers are moving to Chicago - none of them having to do with subsidies. http://digital.cityofchicago.org/index.php/5-reasons-why-chicago-is-the-perfect-city-for-data-centers/
Coincidentally, one of the companies that opened up a second data center in the Chicago area was Ascent. Chicago has 2 out of their 6 locations.
http://www.ascent-corp.com/About/Default.aspx
- 47th Ward - Thursday, Apr 13, 17 @ 12:39 pm:
Data centers don’t employ many folks given the square footage they have. The best incentive to locate a data center is access to cheap electricity. They consume big time wattage running those machines and keeping them cool.
- A Jack - Thursday, Apr 13, 17 @ 12:40 pm:
In fact, Microsoft has the North-Central Azure cloud data center In Chicago. So if they want to expand Azure, they have to build in Chicago anyway.
- Illinois O'Malley - Thursday, Apr 13, 17 @ 12:46 pm:
Can we repost comments from few years ago listing the ‘low’ taxes people in surrounding states pay? I’ll start first with Minnesota:
7.05% $36k to $145k
7.85% $145k to $258k
9.85% over $258k
Gosh Illinois taxes are horrible! IPI, Rauner, Tronc, and Katrina told me so!!!
- The Captain - Thursday, Apr 13, 17 @ 12:46 pm:
It will be interesting if Chris Kennedy has a take on this. I could swear he was involved with a development project that included a data center at or near McCormick Place.
- A Jack - Thursday, Apr 13, 17 @ 12:48 pm:
The company they might think of courting is Amazon with its AWS. Amazon has a data center in Ohio, but nothing in Chicago per the AWS website. AWS isn’t well known compared to Microsoft, but it is being picked by a lot of major companies for cloud services.
- Grand ComEd Bargain - Thursday, Apr 13, 17 @ 1:22 pm:
These data centers aka “the cloud” require large amounts of reliable power. Maybe the economic viability is impacted by power rates and reliability?
- odd - Thursday, Apr 13, 17 @ 1:26 pm:
Lol at Currie denouncing corporate welfare while extending EDGE.
- sulla - Thursday, Apr 13, 17 @ 1:48 pm:
“Just cut all business subsidies and cut the business income tax rate by about the same amount. That will reward all current businesses in the State.”
Yeah, just do that. Totally simple. I’m sure our legislators will have no trouble reaching an agreement to create this new tax utopia.
- walker - Thursday, Apr 13, 17 @ 1:51 pm:
Just a standard ask by any industry lobbyist. Studies have shown that state income tax incentives, while certainly welcome, are rarely in the top five reasons why a company chooses to come or go.
- My button is broke... - Thursday, Apr 13, 17 @ 1:56 pm:
A little background, they don’t really care about income taxes. They want to be exempt from sales taxes on all the servers they purchase and they want to be exempt from electricity taxes on all the electricity they use to run and keep the servers cool.
- City Zen - Thursday, Apr 13, 17 @ 2:20 pm:
@Illinois O’Malley - Minnesota taxes retirement income.
- Arthur Andersen - Thursday, Apr 13, 17 @ 2:21 pm:
One of the largest data centers in Illinois is located in good old Champaign-Urbana, actually in the People’s Republic. They’re next door to the UI’s newest computer center, which houses the lightning-fast Blue Waters supercomputer. They buy excess capacity from the UI and have an impressive client roster. In fact, if you’ve talked with “Siri,” you’ve accessed that data center.
They didn’t ask any government for a dime going in or since. The agreement to capacity-share with the UI made the numbers work.
I think my button is broke has the most on-point comment. It’s electricity (and water) along with equipment replacement that affect the profit more than income taxes.
- CapnCrunch - Thursday, Apr 13, 17 @ 2:22 pm:
“Industry leaders said [tax subsidies] would make Illinois more competitive with neighboring states that do offer the incentives.”
According to the data center count from wiredre.com, it appears that we can attract the data centers without subsidies.
Indiana 11
Iowa 13
Michigan 27
Missouri 32
Minnesota 32
Ohio 39
Illinois 91
- Chicagonk - Thursday, Apr 13, 17 @ 2:27 pm:
It’s one thing to subsidize a new auto plant that brings high paying jobs and suppliers to an area. Data centers have a marginal at best impact on a local economy.
- BEST Dave - Thursday, Apr 13, 17 @ 2:37 pm:
“- 47th Ward - Thursday, Apr 13, 17 @ 12:39 pm:
Data centers don’t employ many folks given the square footage they have. The best incentive to locate a data center is access to cheap electricity. They consume big time wattage running those machines and keeping them cool.”
47 is exactly right. Unfortunately, the multi-billion dollar Exelon Bailout and related rate increases are discouraging high intensity electricity users from locating in Illinois. Data centers were clearly going to be hurt by the misnamed Future Energy Jobs Bill and you’re seeing that here. While Illinois rates are still lower than many other states, the rate increase combined with other Illinois dysfunction is going to continue hurting our economic competitiveness.
Oh, and Exelon recently filed to sell capacity from its massive Byron plant downstate and out of state. So much for the bogus case that justified the bailout.
- Earnest - Thursday, Apr 13, 17 @ 2:38 pm:
>The best incentive to locate a data center is access to cheap electricity.
Weird…I thought everyone hated tax increases but didn’t mind raised electric rates at all. /s
- BEST Dave - Thursday, Apr 13, 17 @ 2:39 pm:
Here’s the link to the story on their sales of Byron’s capacity.
http://www.chicagobusiness.com/article/20170324/ISSUE01/170329896/exelon-seeks-right-to-export-power-from-big-illinois-nuke
- Ron - Thursday, Apr 13, 17 @ 2:43 pm:
Why not simply eliminate corporate income tax in Illinois?
- Anonymous - Thursday, Apr 13, 17 @ 3:00 pm:
I guess Illinois could be served from Indiana, Iowa, Missouri or Michigan.
- Dave in Chicago - Thursday, Apr 13, 17 @ 3:32 pm:
@Illinois O’Malley I find it amusing when everyone on this site posts tax rates from other states to prove how low Illinois rates are. Rates by themselves prove nothing. Minnesota’s rates apply to adjusted gross income. Income minus deductions and exemptions. Deductions can be standard deductions or itemized. WEB site WWW-TAX-RATES.COM does income tax comparisons between states. A family of four with an income of $85000 and itemized deductions of 21K for mortgage interest, property taxes, charitable contributions, etc will pay a state income tax of $2789 in Minnesota while the same family in Illinois pays $2869. A little more. Also, the tax site lists the median property tax for Illinois as $3507 while the median bill in Minnesota is $2098. Average sales tax (state + local) in Minnesota is 6.91% while the average rate in Illinois is 8.19%. So it’s easy to see that taxes in Minnesota are currently LESS than in Illinois.
- BKC - Thursday, Apr 13, 17 @ 3:38 pm:
Chicago have one of the 5 largest data centers in the US with over 1MM square feet of space and almost nobody works there. There are a few security guards, electricians and some onsite hardware people but everyone else works remotely. I live in Chicago and none of the data centers I work with are in Illinois. The point being is that data centers are not great for jobs. Do something to attract startup and established high-tech companies and then you have my support.
- Chicago 20 - Thursday, Apr 13, 17 @ 6:52 pm:
It not that Microsoft needs a subsidy.
It’s just Microsoft knows how giddy Illinois bureaucrats get when they here Microsoft’s name.
It was less than two years ago in 2015 when Choose Chicago gave Microsoft the use of McCormick Place for three weeks for $1. Millions of freebies for one of the world’s most profitable corporations while the MPEA’s deficit climbed to $1.4 billion in FY 2015.
Choose Chicago - chasing rainbows with our tax dollars.