Ohio, its cities throw hundreds of millions at tech giants for data centers

COLUMBUS – Stadium-sized data centers that consume huge amounts of electricity are popping up all over central Ohio, getting hundreds of millions in state and local tax breaks every year, even as grid operators worry the facilities may soon overburden the available power supply.

The data centers are owned by a mix of consumer-facing brands like Amazon, Google and Meta, plus less familiar names like Quality Technology Services and CyrusOne. While from the outside they may look like large factories, they often employ 20 to 30 or so workers when operational. Some earn tax perks for promising as few as 10 new jobs.

Big tech’s new interest in what politicians call “the silicon heartland” comes at a cost. This year, data centers are estimated to claim nearly $123 million in state sales tax exemptions, and $127 million next year. Some data centers also claim new job creation tax credits, which provide a 75% reduction in their state commercial activity taxes over 15 years. Meanwhile, cities and counties have granted dozens of data centers generous property tax abatements, reaching up to 100% over a 15-year life span.

These benefits flow to facilities driving a surge in power demand across the U.S., and prompting concerns about grid reliability from PJM, operators of the 13-state grid that includes Ohio. And the benefits flow with limited transparency – the state has refused to share a full scope of how much it’s paying in tax breaks, who is claiming them, and what local tax abatements state officials have approved.

The rise of artificial intelligence and cryptocurrency is fueling huge demands for data processing. The data centers – a jumble of computers, routers, networking equipment, and hundreds of millions of gallons of water to keep it all cool – are, as Google puts it, “the engines behind the digital services” that “help keep the internet up and running.”

The Ohio Department of Development, which until last year was responsible for approving the local property abatements, has refused to say how many local tax deals its officials allowed. And the Ohio Department of Taxation, which administers Ohio’s sales tax exemption created specifically for data center operators, has refused to say which companies receive the exemption or how much they’re costing the state in lost revenue.

“Due to confidentiality, we cannot provide actual tax forgone related to this credit – even in the aggregate because it is such a finite number of taxpayers,” said Andrea Lannom, a spokeswoman for the Department of Taxation.

Kasia Tarczynska a research analyst with Good Jobs First, who has written critically about the subsidization of big data in Ohio and elsewhere, said the huge public cost compared to the meager job growth makes no sense.

“They create a very limited number of jobs, because they’re very capital intensive,” she said.

Zach Schiller, an economist with the progressive Policy Matters Ohio, said the subsidization of data centers isn’t getting the scrutiny it deserves. Ohio is losing tax revenue to some of the world’s biggest companies, he said, for pennies.

“If you’re looking at cost-benefit here, we’re spending hundreds of millions of dollars for puny numbers of jobs from companies who are no two-bit operations,” he said. “These are gigantic, wealthy entities.”

Rea Hederman Jr., an economist at the conservative Buckeye Institute said establishing more tax exemptions reduces the overall tax base and shifts the burden to everybody else. He said taxes should generally be lower but equal between all parties.

Data centers require huge amounts of power. PJM in a 2023 report warned that the influx of data centers, coupled with the retirement of aging coal plants, “present[s] increasing reliability risks” during the transition toward renewable energy.

After a decade of flat power demand, Goldman Sachs research projects a 2.4% increase nationally, with nearly 40% of that increase attributable to data centers. In 2022, data centers used 3% of U.S. power, per Goldman, but that will spike to 8% by 2030.

American Electric Power, the utility that serves most the data centers, since March 2023 has imposed a moratorium on service requests for new facilities, warning that Central Ohio’s power demand will soon rival that of Manhattan. AEP is now asking state regulators for permission to treat the data centers as a unique customer class, required to pay for all the energy they project to use even if they wind up needing less. That case, opposed by the data centers, is pending. In Northeast Ohio, FirstEnergy Corp. CEO Brian Tierney compared demand explosion from data centers today to the invention of air conditioning.

“It’s going to be huge,” he said to Crain’s Cleveland Business.

Subsidized data

There are 17 data centers in New Albany, a wealthy suburb northeast of Columbus. Every one of them receives property tax abatements of between 65% and 100% from the city, usually lasting 15 years, according to city spokesman Josh Poland.

The abatements come via Ohio’s Community Reinvestment Area program. Under these CRA agreements, the local governments offer the developers abatements of up to 100% on their property taxes for 15 to 30 years. This is money that would have otherwise flown to schools in the district, although some of the agreements divert income tax from the developments toward the schools, which rely on property tax revenue.

Amazon Web Services, a cloud services subsidiary of the retailer, runs a data center campus in New Albany, plus others in Hilliard and Plain City. All of them enjoy local property tax breaks, sometimes as high as a 100% property tax abatement, plus the state sales and use tax exemption.

The company didn’t specify the value of the exemption but said it has spent $10.3 billion investing in Ohio in capital and operational costs, with another $7.8 billion projected by 2030.

Search giant Google operates three data centers in Lancaster, Columbus and New Albany, part of its fleet of 17 nationwide. The facilities service the likes of Nationwide Insurance, Victoria’s Secret, Wendy’s, and Huntington National Bank. Google declined to volunteer information about its tax abatements but confirmed CRAs with New Albany and Lancaster.

In March 2021, the city of Columbus granted a 100%, 15-year CRA to Magellan Enterprises LLC. According to a local TV news report, city council members didn’t learn until months later that Magellan was a Google subsidiary. The tax break, per NBC4i, was worth $54 million over its lifetime, for a project expected to create 20 new jobs.

Meta, parent company of Facebook, operates a $1.5 billion data center in New Albany. It enjoys a 100% property tax abatement for 15 years. The company declined to say if the facility claims a sales tax exemption.

Just down the road sits a four-building QTS data center campus. Its agreement with New Albany grants them all 15-year, 100% property tax abatements. But the state also approved QTS for a new job creation tax credit, citing 10 new jobs the facilities deliver. That grants the company a 100% exemption from its commercial activity tax, paid to the state, for 15 years.

Other subsidized data centers in New Albany are operated by AEP, Discover Financial, Encova Insurance, TJX and Google. Around the state, a Wood County data center owned by Liames was recently awarded both a property tax abatement and a tax increment financing agreement. And two Kroger data centers around Cincinnati were granted 75% sales tax breaks on data center equipment purchases for 15 years.

The facilities are centralized in, but not limited to, Central Ohio. According to Data Center Map, a site used by the industry officials, there are about 30 data centers apiece around Cleveland and Cincinnati, compared to 95 clustered around Columbus.

What the data centers say

Cleveland.com and The Plain Dealer requested interviews with several data center operators. None agreed, although some offered written answers to questions.

Roger Wehner, director of economic development at Amazon Web Services, said these kinds of subsidies are common practice to encourage investment and job creation. These projects take years, long-term vision, and commitment. Plus, the company owns 23 wind and solar projects in Ohio, expected to generate an impressive 3.2 gigawatts of carbon free power for its operations. That would be enough power for nearly 650,000 homes.

“Since 2015, AWS has invested more than $10 billion in Ohio while supporting thousands of local jobs,” he said. “We’re proud of our long-term partnership with the State of Ohio, and last year announced plans to invest an additional $7.8 billion by 2030. This long-term investment continues to bring new, well-paying jobs and will continue to boost the state’s gross domestic product each year.”

Amber Tillman, Google’s head of data center public affairs, said in a statement that economic development incentives play an “important” role in helping make these projects possible and the company is “appreciative,” although she declined to offer specifics about the tax breaks.

Meta, parent company of Facebook, declined to answer written questions. But the company provided a two-page marketing document touting its New Albany facility’s $1.5 billion cost; the 1,200 workers it had on site during construction; and the 300 jobs that will be “supported” once it’s complete.

QTS, a Canadian company, operates 35 operational data centers in the U.S. Two are under construction in New Albany. The company declined to share the terms of the facilities’ CRAs, but said it was pleased to work with state and local authorities to “develop a competitive market offering that benefits QTS, the City of New Albany, and the State.”

CyrusOne didn’t respond to inquiries.

Data Centers provide good paying jobs and additional construction work over their 40-year commitment when they build in the state, all of which produces significant income tax revenue, according to Matt Englehart, a spokesman for JobsOhio, the state’s semi-private economic development arm. The presence of blue-chip companies like Amazon and Google speaks positively to the state, attracts other big companies, and lures skilled employees.

“Companies are also investing in the communities in which they reside by contributing to workforce development programs, schools, training centers and other initiatives with the goal of being good corporate citizens,” he said.