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Google Seeks 20 Years of Minnesota Tax Breaks for Data Center

Posted on Feb. 28, 2019

Google LLC is asking for reduced electricity rates, sales tax exemptions, and up to $15 million in property tax breaks for its planned $600 million data center in Minnesota.

The proposed 375,000-square-foot data center in the city of Becker is projected to generate at least $600 million in capital investment, according to a Department of Employment and Economic Development (DEED) impact analysis. That investment would make it one of the largest private developments in state history, and the project would create around 2,000 construction jobs for a period of 18 to 24 months and a minimum of 50 tech jobs with an aggregate payroll of over $4 million, according to DEED spokesman Shane Delaney.

Google will finance the project with its own capital, but it is requesting tax breaks from the city and Sherburne County and asking to avail itself of the state’s preferential treatment for data centers.

The state provides qualifying data centers with 20 years of sales tax exemptions on computers and servers, cooling and energy equipment, energy use, and software. In 2017 and 2018, there were four new data centers and nine data center refurbishment projects across the state.

“Our reputation in this area allows us to be positioned as a part of that company’s network of global data centers,” Delaney told Tax Notes February 26.

The race among states and localities to offer economic incentives to draw large companies has sparked increased scrutiny of tax subsidies, as well as pushback from taxpayers and policy groups. The oft-criticized bidding war over Amazon's second headquarters project led lawmakers in New York, Illinois, Florida, and other states to push for an interstate compact that would prohibit company-specific incentives. The company planned to split the project between New York and Northern Virginia but announced February 14 that it would not build in New York City after all, citing mounting public pressure and opposition from local and state leaders over the $2 billion in tax breaks it offered the company.

Still, as Silicon Valley tech companies scout for new headquarters and data or co-location centers, some states have raced to offer more incentives to lure them. In early February, Google CEO Sundar Pichai announced that the company would be investing $13 billion in data centers in 2019. It would be the second year in a row that the company grew faster outside of California’s Bay Area than within it. New sites are planned for Nebraska, Nevada, Ohio, Texas, Oklahoma, South Carolina, and Virginia, according to Pichai.

While Minnesota is not on that list, Delaney said the Becker project has been in negotiations for 18 to 20 months.

In exchange for its investment into the state, Google is seeking property tax abatements from the county and city that would equal the projected increase in property taxes on the site after its completion.

According to court documents, the land where the facility would be built was optioned at a reduced rate, from a listed $25,000 per acre to around $20,000 per acre. Jet Stream LLC, a subsidiary negotiating on Google's behalf, has optioned to purchase the 315.2 acres for $6.3 million.

The county assessor valued the land at $1.76 million, and the city estimated that the property's market value upon completion would be $41.6 million. Local real estate taxes on the property are around $16,476 and are estimated to jump to $328,726 after the facility is built. Jet Stream requested property tax breaks for 20 years for the data center, but not school district tax abatements.

In total, the project would cost around $6 million to $7 million in abated property taxes for the city and $7 million to $8 million for the county, according to Marie Pflipsen, community development director for Becker.

“When you look at the tax base 20 years out from now, it will bring in a nice revenue stream,” Pflipsen told Tax Notes. “With the school district, they will get full funding.”

Pflipsen said city attorneys are still working on drafting an agreement that would include clawback provisions if the company doesn't meet job creation provisions.

Another Google subsidiary, Honeycrisp Power LLC, is negotiating reduced electricity rates for the project with Xcel Energy, the public utility that owns the land and operated a former coal plant at the site. The exact rates have been redacted, but the company's filings show the rates were negotiated for a 10-year term. As part of the power purchase agreements, Xcel would build up to 300 megawatts of new wind projects in the Northern States power system.

In its request for financial assistance, Google wrote, “The competition for data centers from other cities and states is very strong. In light of this competitive environment, Google is continually evaluating its options before making a decision to invest $600+ million in Becker.”

The same line of reasoning was included in its negotiations over electricity rates, with its request form saying that the site was selected primarily for Google’s “ability to negotiate a suitable rate for electric service” for the center.

In an effort to spruce up the planned site for prospective tenants, legislation has been introduced in the House and the Senate that would authorize the issuance of $20.1 million in bonds to be used by Becker to acquire land and develop a business park.

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