Michigan lawmakers divided but OK tax breaks to lure data centers

• Legislators approve tax breaks for big server farms over opposition from many Democrats and environmentalists
• The breaks are expected to cost the state $90 million in lost taxes 
• Advocates say the jobs are high-tech and well-paying; skeptics say the centers consume too much energy for too few 

A divided Michigan House of Representative on Wednesday approved one half of a two-bill package to offer new tax breaks to entice major tech companies to build multi-billion dollar server farms in the state.

The bill, Senate Bill 237, is part of a package that would exempt large “enterprise data centers” owned and operated by tech giants like Microsoft and Google from sales and use taxes on their equipment through at least 2050 (2065 for data centers built on a brownfield).

An analysis by the Senate Fiscal Agency estimated the proposed tax breaks could reduce state and local tax revenue by more than $90 million through 2065.

In exchange, each data center operator would be required to invest at least $250 million and create 30 jobs paying 150% of local median wage.

The bill, which would authorize the use tax exemption, passed 56-41 against objections from tax break skeptics and environmentalists, who see it as an unnecessary giveaway with too few protections for the environment.

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Its companion sales tax bill, SB 4906, cleared the Senate and was put forward for a vote in the House Wednesday, but was pulled from the voting board after failing to garner enough votes.

Its chief sponsor, Joey Andrews, D-St. Joseph, said he hopes to put it back up for a vote in the "lame duck" session following the November general election.

Amid a building boom in the data center industry, package proponents say Michigan is losing out on big projects because it can’t compete with the tax breaks offered by neighbors like Indiana and Wisconsin. 

Although the bills’ chief sponsors are Democrats — Andrews and Sen. Kevin Hertel of St. Clair Shores — Democratic lawmakers were divided and SB 237 passed with Republican support.

"Data is going to be a huge resource and fueling part of the 21st century economy," said Rep. Bill G. Schuette, R-Midland. "I want those investments to happen in Michigan.”

Opponents contend the incentives are too much and include too few assurances that energy-hungry data centers won’t compromise Michigan’s clean energy goals, waste its water or raise electricity costs for residential customers.

"We have the lowest industrial rates and the highest residential rates in the entire state and the Midwest," Rep. Jenn Hill, D-Marquette said of her district in the Upper Peninsula after casting a “no” vote. "I think they need to be paying their fair share.”

Last fall, Michigan passed a law requiring utilities to get 100% of their power from clean energy by 2040. But data centers require copious energy, and some states have been forced to delay their energy transition in order to meet those demands.

Sean McBrearty, state director for the nonprofit Clean Water Action, said he fears a similar outcome for Michigan utilities “because data centers are going to create such a large load on their grid.”

Although data centers provide few permanent jobs, bill proponents say even with state tax exemptions the facilities would pay millions annually to local schools and governments.

Opponents’ concerns stem in part from Michigan’s history with Switch, a data center operator that promised to create 1,000 jobs in exchange for state and local tax breaks that have saved the company millions per year at a facility near Grand Rapids.

But a recent Bridge Michigan story revealed that by a 2022 deadline to deliver 103 of those jobs, Switch had hired just 26. Rather than penalizing the company, Michigan lowered the bar for what qualifies as a job.

“The fact that data centers have never lived up to their promises on jobs or economics should be informing decisions today,” said McBrearty. “But unfortunately, for 56 state representatives today, it wasn’t.”

Proponents of the new tax break bills say Michigan has learned from its experience with Switch, and the package includes protections against overly-generous incentives and unrealistic jobs promises.

And they argue Michigan can meet its climate goals while absorbing new energy demand from data centers — particularly if the Palisades nuclear plant reopens in Andrews’ southwest Michigan district. 

Andrews blasted environmental activists for opposing the package.

“These bills would be the strongest environmental protections in the country on data centers,” he said. “Anybody who says these protections aren’t good enough is either delusional, lying, or really doesn’t want these to pass. And I think there’s a combination of those things within the environmental movement.”

Officials in Andrews’ district are hoping to market a 280 acre parcel near Benton Harbor to a data center operator. Andrews said such an investment would be transformative for the community, potentially doubling the local school district’s budget and financially bailing out struggling local water systems.