© 2020 Mangum Economics
JANUARY 2020
THE IMPACT OF DATA CENTERS ON THE STATE
AND LOCAL ECONOMIES OF VIRGINIA
PREPARED BY
LEAD SPONSORS
SUPPORTING SPONSORS
NVTC 2020 Data Center Report
Table of Contents
About the Northern Virginia Technology Council ..................................................................................... 1
Acknowledgements ................................................................................................................................. 1
Executive Summary ................................................................................................................................. 2
Introduction to Data Centers in Virginia ................................................................................................... 4
Economic Profile of Data Centers in Virginia ........................................................................................ 5
The Northern Virginia Data Center Market in 2019 .......................................................................... 5
The Regional Distribution of Data Centers in Virginia ....................................................................... 7
The Upward Trend in Virginia’s Data Center Industry ....................................................................... 8
The High-Performance Data Center Industry in Virginia ................................................................... 9
The Impact of Data Centers on Virginia State and Local Economies.......................................................... 9
Virginia Statewide.............................................................................................................................. 11
Central Virginia .................................................................................................................................. 12
Hampton Roads ................................................................................................................................. 13
Northern Virginia ............................................................................................................................... 14
The Northern Virginia Community College Programs ..................................................................... 14
Southern Virginia ............................................................................................................................... 15
Southwestern Virginia ....................................................................................................................... 16
Valley ................................................................................................................................................ 17
State and Local Taxes Generated by Data Centers in Virginia ................................................................. 18
Statewide and Regional Tax Collections Associated with Data Centers ............................................... 19
Contribution to Local Government Budgets ....................................................................................... 19
High Local Benefit to Cost Ratio ..................................................................................................... 19
Reduces the Tax Burden on Local Residents and Lowers Tax Rates................................................. 21
Data Center Incentives in Virginia .......................................................................................................... 24
Virginia’s State Incentives .................................................................................................................. 24
JLARC’s Evaluation and Findings ..................................................................................................... 24
Virginia’s Incentive is One of the Most Restrictive .......................................................................... 26
JLARC’s Primary Recommendation ................................................................................................. 27
Incentives have been Instrumental in the Development of Virginia’s High-Tech Infrastructure ....... 28
The Incentive Helps to Attract Some Data Centers that Do Not Qualify for the Incentive................ 29
NVTC 2020 Data Center Report
Local Incentives ................................................................................................................................. 30
National Context for Virginia Incentives ................................................................................................. 32
Washington State Has Proven the Effectiveness of Incentives ............................................................ 33
Conclusion ............................................................................................................................................. 34
About Mangum Economics, LLC
Mangum Economics, LLC is a Richmond, Virginia based firm that specializes in producing objective
economic, quantitative, and qualitative analysis in support of strategic decision making. Much of our
recent work relates to IT & Telecom Infrastructure (data centers, terrestrial and subsea fiber),
Renewable Energy, and Economic Development. Examples of typical studies include:
POLICY ANALYSIS
Identify the intended and, more importantly, unintended consequences of proposed legislation and
other policy initiatives.
ECONOMIC IMPACT ASSESSMENTS AND RETURN ON INVESTMENT ANALYSES
Measure the economic contribution that businesses and other enterprises make to their localities.
WORKFORCE ANALYSIS
Project the demand for, and supply of, qualified workers.
CLUSTER ANALYSIS
Use occupation and industry clusters to illuminate regional workforce and industry strengths and
identify connections between the two.
The Project Team
A. Fletcher Mangum, Ph.D.
Founder and CEO
David Zorn, Ph.D.
Economist
Martina Arel, M.B.A.
Researcher and Economic Development Specialist
Kate Driebe
Research Assistant
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About the Northern Virginia Technology Council
The Northern Virginia Technology Council (NVTC) is the regional voice of technology, representing a
diverse and thriving technology ecosystem, promoting innovation, and convening, educating, and
advocating for the region's technology community.
NVTC is the membership and trade association for the technology community in Northern Virginia. As
the largest technology council in the nation, NVTC serves about 1,000 companies and organizations,
including businesses from all sectors of the technology industry, service providers, universities, foreign
embassies, non-profit organizations and government agencies. Through its member companies, NVTC
represents about 300,000 employees in the region. NVTC provides its members with:
• Over 150 networking and educational events per year.
• Comprehensive member benefit services.
• Public policy advocacy on a broad range of technology issues at the state and regional levels,
with involvement in federal issues as they relate to workforce and education concerns.
• Community service opportunities through involvement in community projects and philanthropy.
NVTC’s Data Center and Cloud Committee provides a clear, consistent, collective and compelling voice
for promoting the interests of the region's growing data center, cloud, and critical infrastructure
community to contribute to the long-term growth and prosperity of the industry. The committee:
• Promotes the interests of anyone with a stake in ensuring that Northern Virginia continues to be
a leading global destination not just for data centers but also for the wider ecosystem that relies
on the data center as the commerce platform of the 21st century.
• Provides educational and training programming for its members and provides forums for
thought leadership and the sharing of best practices.
• Leads efforts to identify the needs of the future workforce and advocates for industry-specific
education programming.
• Informs the community of the industry's vital role as a contributor to today's technology-led
economy and a major factor in the prosperity and economic stability of the region.
• Works to ensure the sustainability of the industry by thoughtfully discussing potential barriers to
growth and acts as an advocate for policies that prompt the overall health of the industry.
• Addresses the short- and long-term competitiveness of the data center industry in Virginia.
• Bolsters the data center and critical infrastructure industry through public policy advocacy.
• Promotes initiatives to increase data center investment and expansion throughout Virginia.
Acknowledgements
This report was made possible in part by the unique data supplied by the Loudoun County Department
of Economic Development (especially, Alex Gonski and Buddy Rizer), the Prince William County
Department of Economic Development (especially, Allisha Abraham, Thomas Flynn, and Jim Gahres),
and the Virginia Economic Development Partnership (especially, Brian Kroll).
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Executive Summary
Northern Virginia is the largest data center market in the world, but the data center industry has an
important footprint in every part of the Commonwealth of Virginia. Central Virginia and Hampton Roads
each account for almost ten percent of overall industry employment in the state. Data center industry
pay has increased twice as fast as the statewide average since 2001.
We estimate that in 2018 the data center industry in Virginia directly provided approximately:
• 14,644 full-time-equivalent jobs with an average annual pay of $126,000,
• $1.9 billion in associated pay and benefits, and
• $4.5 billion in economic output.
Taking into account the economic ripple effects that direct investment generated, we estimate that the
total impact on Virginia from the data center industry in 2018 was approximately:
• 45,290 full-time-equivalent jobs,
• $3.5 billion in associated pay and benefits, and
• $10.1 billion in economic output.
Data centers pay millions of dollars in state and local taxes in Virginia, even though Virginia has a sales
and use tax exemption on some equipment for data centers that are large enough to qualify for the
exemption. In addition to the taxes paid directly by data centers, local governments and the
Commonwealth of Virginia collect tax revenue from the secondary indirect and induced economic
activity that data centers generate. We estimate that in 2018, data centers were directly and indirectly
responsible for generating $600.1 million in state and local tax revenue in Virginia.
At the local level data centers provide far more in county or city tax revenue than they and their
employees demand in local government services. For example, we estimate that for every dollar in
county expenditures that the data center industry caused in 2018, it generated:
• $8.60 in local tax revenue in Henrico County, and property taxes there would have had to rise by
1 percent without the data center induced tax revenue.
• $15.10 in local tax revenue in Loudoun County, and property taxes there would have had to rise
by 21 percent without the data center induced tax revenue.
• $17.80 in tax revenue in Prince William County, and property taxes there would have had to rise
by 7 percent without the data center induced tax revenue.
In June of 2019, Virginia’s Joint Legislative Audit and Review Commission (JLARC) published an
evaluation of the state’s data center sales and use tax incentive. JLARC found that 90 percent of the data
center investment made by the companies that received the sales and use tax exemption would not
have occurred in the state of Virginia without the incentive. Instead, that data center investment would
have occurred in other states. So, the “cost” of the State data center incentive is only 10 percent of the
amount of State sales tax revenue exempted. In fact, in 2017, the data center tax incentive generated
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$1.09 of State tax revenue for every dollar that it exempted; and in 2016, the incentive was revenue
neutral. Since 2013, after the General Assembly significantly revised the Virginia data center incentive,
the State has recovered 75 cents of every dollar of potential tax revenue that it exempted. In the
process it created thousands of Virginia jobs with billions of dollars in pay and benefits and billions of
dollars in economic activity throughout the state.
Virginia is one of 31 states that actively offer incentives to attract data centers to locate in their states.
Several states are in the process of revising their incentives to remain competitive. Virginia’s data center
incentive is one of the most restrictive in the country. Of the 31 states that actively offer data center
incentives, only 11 require a minimum number of new jobs to qualify for an incentive, and only Virginia,
Mississippi, and Nevada require the creation of 50 or more new jobs.
Virginia’s data center incentive has been important in the spread of technology industries across the
Commonwealth and in attracting smaller data centers that do not qualify for the incentive to invest in
the state as well. Recently several localities have reduced their local property tax rates in order to
attract data centers to support their economies.
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Introduction to Data Centers in Virginia
Life is increasingly digitized, and our digitized lives are stored, secured, processed, enhanced, and
distributed by data centers. Our finances, communications, health care, recreation, entertainment,
education, transportation, work, and social lives are often and increasingly online. Data centers are
more than just the redundant warehouses for our digital lives. They are also the generators of much of
the interactive digital content that we use. The personalized shopping recommendations; the on-the-fly
driving directions; the online assistance selecting a restaurant, hotel, plane flight; the digital grocery
coupons; the machine responses to banking and billing inquiries, etc. are all provided by data centers.
In 2012, IBM published an estimate that 90 percent of all data have been created in the last two years.
1
In other words, at that time, the total amount of data was increasing by ten times every two years. At
that rate, from 2010 to 2020 the total amount of data has increased by 100,000 times. Now consider
that the IBM estimate was made prior to the widespread adoption of commercial connected sensors
and smart consumer appliances. The expansion of artificial intelligence, machine learning, and
augmented reality are all putting increasing demands on data centers. So, it is quite likely that the rate
of growth of data is even greater than in 2012. We have not yet reached “peak data center.”
In addition, with the rollout of 5G technology to wireless networks, the shape of the industry will
change. Edge data centers that are relatively smaller than large cloud data centers will need to be
located near places where people congregate and move. However, edge data centers will not be
substitutes for large enterprise data centers or cloud data centers. Instead, edge data centers will be
constructed as a complement to large data centers as the data center industry continues to grow and
evolve to meet the demands of new technology.
Because data centers use large amounts of costly electricity and water, they have emerged as leading
innovators at the forefront of increasing operational efficiency in the use of energy and water.
2
Among
other innovations, data centers have used digitization, advanced sensors, and machine learning (within
data centers) to dramatically reduce energy and water consumption. For example, Google has been able
to reduce the amount of energy used for cooling in its data centers by up to 40 percent, reducing overall
energy usage in its data centers by 15 percent on top of previous efficiency enhancements.
3
Data center
companies have also made large commitments to the purchase of energy from renewable sources here
in Virginia and nationwide. For utility companies to move to different and initially costlier sources of
renewable power, they need this kind of commitment to provide a stable demand to ensure that the
large upfront investments that are required are financially sustainable.
This report quantifies the significant contribution that this dynamic and rapidly evolving industry makes
to the state of Virginia and its localities.
1
David Greer, “System z Helps Address the Data Analytics Power Crunch,” IBM Systems magazine, April 2012.
2
https://www.osti.gov/servlets/purl/1372902/
3
https://deepmind.com/blog/article/deepmind-ai-reduces-google-data-centre-cooling-bill-40
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ECONOMIC PROFILE OF DATA CENTERS IN VIRGINIA
Virginia now has data centers located throughout the state, from Wise County in Southwestern Virginia
and Harrisonburg in the Valley to Mecklenburg County in Southern Virginia, Virginia Beach in Hampton
Roads, and Henrico County in Central Virginia to Loudoun County in Northern Virginia, and other
localities. This report shows how the data center industry in every part of the state makes an important
economic contribution to employment and taxes in every region and to the state as a whole. However,
we begin with an update on the remarkable data center market in Northern Virginia.
The Northern Virginia Data Center Market in 2019
Northern Virginia has the largest data center market in the world. According to the latest data from
CBRE
4
, measured in megawatts (MW) of power capacity, Northern Virginia has more data center
inventory than the 6
th
through the 15
th
largest markets (New York Tri-State, Atlanta, Austin-San Antonio,
Houston, Southern California, Seattle, Denver, Boston, Charlotte-Raleigh, and Minneapolis) combined
and almost as much as the 2
nd
, 3
rd
, 4
th
and 5
th
largest markets (Dallas-Fort Worth, Silicon Valley, Chicago,
and Phoenix) combined.
The large capacity of Northern Virginia’s data center market is matched by its growth. Twenty-two
percent of the total data center capacity in Northern Virginia was added between the second half of
2018 and the first half of 2019.
The growth in the Northern Virginia data center market has not only served technology, data center,
and data dependent companies, but construction companies.
Northern Virginia’s place at the top of the data center market is a relatively recent development. In
2016, Northern Virginia had just supplanted the New York market as the largest data center market in
the United States. In 2017, the New York Tri-State area had fallen to the sixth largest data center
market. A 2011 report on the data center market in the United States contains only one mention of
Virginia in four pages – “Reston, VA has excess supply and new construction will be minimal for a few
years.”
5
The locations that were highlighted as important in the industry were Chicago, Silicon Valley,
Southern California, Phoenix, New York, St. Louis, Washington State, Boston, Minneapolis, Denver, and
Charlotte. Regarding what has become the second largest data center market, the report says, “Dallas
has excess capacity and growth remains slow.”
This illustrates the fluid nature of the data center industry and the speed with which market conditions
can change in the industry. Once hot markets can cool off rapidly. A year ago, the data center market in
Phoenix had enormous growth, but between the second half of 2018 and the first half of 2019, Phoenix
saw net outflows of 26.5 MW worth of tenants, which is almost the same amount that Northern Virginia
4
CBRE, Large Supply Pipeline Sets Stage for Market Growth in 2019 North American Data Center Report H1 2019.
5
ESD (Environmental Systems Design, Inc.), 2011 Data Center Technical Market Report. February 2011.
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added in the same period.
6
The computer equipment in data centers is replaced on average every three
years. Should circumstances require it, data center tenants can move from one location to another and
leave significant vacancies in colocation data centers.
Figure 1 shows the top 15 largest data center markets in the United States. The area of each circle
indicates the relative amount of power capacity (MW labeled in black) in each market. Brighter blue
circles indicate markets with higher occupancy rates, with Austin-San Antonio, Silicon Valley, and
Northern Virginia having occupancy rates of about 96 to 93 percent (in order of occupancy).
Figure 1. Relative Sizes of Largest Data Center Markets (megawatts of power capacity) – 2019
7
6
CBRE, Large Supply Pipeline Sets Stage for Market Growth in 2019 North American Data Center Report H1 2019.
7
CBRE, Large Supply Pipeline Sets Stage for Market Growth in 2019 North American Data Center Report H1 2019.
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The Regional Distribution of Data Centers in Virginia
The Virginia Economic Development Partnership (VEDP) provided data on the private sector Data
Processing, Hosting, and Related Services industry (as defined by the U.S. Bureau of Labor Statistics) for
this economic profile.
8
VEDP divided the statewide data into six sub-state regions depicted in Figure 2.
Figure 2. Six Sub-State Regions Defined by the Virginia Economic Development Partnership
According to VEDP, in 2018, the private sector data center industry employed 14,644 people (full-time
equivalents) statewide.
8
As is common practice, we use the Data Processing, Hosting, and Related Services industry as defined by the U.S. Bureau of
Labor Statistics as a proxy for the data center industry. The data and methods applied in this report are described in the
separate accompanying Appendix.
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Figure 3 shows the regional distribution of that employment. Seventy-five percent of data center
employment was located in Northern Virginia. However, industry employment was distributed across
other regions of the Commonwealth, as well. Central Virginia and Hampton Roads accounted for nine
percent of data center jobs each. Southern Virginia (home to Microsoft’s Boydton data center campus,
the east coast hub for Microsoft Azure) accounted for four percent of private sector data center
employment, one percent of industry employment was in Southwestern Virginia, and two percent was
in the Valley.
Figure 3. Regional Distribution of Private Sector Data Center Employment in Virginia in 2018
9
The Upward Trend in Virginia’s Data Center Industry
Data center employment in Virginia generally declined between 2004 and 2012, but it has since
escalated rapidly to 14,644 jobs in 2018.
10
That change to the uptrend in employment that began in
2012 coincides with the year that Virginia significantly revised its data center incentive to make it more
competitive with other states in attracting data centers. More detail on the employment trends in the
industry is included in the separate Appendix that accompanies this report.
9
Data Source: Virginia Economic Development Partnership.
10
Data Source: Virginia Economic Development Partnership.
Central VA: 9%
Hampton Roads: 9%
Northern VA: 75%
Southern VA: 4%
Southwestern VA: 1%
Valley: 2%
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The High-Performance Data Center Industry in Virginia
One of the key characteristics of the data center industry is that it is extremely capital intensive. In other
words, the industry employs a relatively small number of highly skilled and highly paid people to operate
and maintain a very large amount of very expensive equipment. Therefore, it is useful to also look at
trends in private sector average annual wages in the industry.
Between 2001 and 2018 the average annual private sector wage in the data center industry in Virginia
grew from $61,310 to $126,050 – a 106 percent increase.
11
In comparison, over the same period
average private wages across all industries in Virginia went from $36,525 to $57,846 – an increase of 58
percent.
12
In other words, over the 18-year period, the average private sector employee of a Virginia
data center saw their gross income go up almost twice as fast as the average private sector employee in
Virginia. More detail on the employment trends in the industry is included in the separate Appendix that
accompanies this report.
This combination of steadily rising employment and rapidly rising wages make the data center industry
one of Virginia’s most high-performance industries and an important (and growing) contributor to a
strong and robust state economy. Moreover, in a state such as Virginia where roughly two-thirds of
state revenue comes from personal income tax, high growth/high wage industries such as the data
center industry also play a disproportionate role in ensuring the health of the State’s budget.
The Impact of Data Centers on Virginia State and Local Economies
The construction and ongoing operation of data centers in Virginia has large, broad effects across the
state economy. In this section, we estimate the statewide economic impact that the data center
industry has on Virginia, as well as in each of the six sub-state regions detailed earlier. To empirically
evaluate the statewide and regional economic impact attributable to the data center industry, we
employ a commonly used regional economic impact model called IMPLAN Pro.
13
The methodology for
modeling the economic impact of data centers is explained in more detail in the separate Appendix that
accompanies this report.
Regional economic impact modeling measures the ripple effects that an expenditure generates as it
makes its way through the economy. For this report, spending by the data center industry in Virginia has
a direct economic impact on the state economy in terms of people hired as data center employees,
employee pay and benefits, and economic activity in the region for utilities, construction, and
equipment. That direct spending by the data centers creates the first ripple of economic activity.
11
Data Source: Virginia Economic Development Partnership.
12
Data Source: U.S. Bureau of Labor Statistics.
13
IMPLAN Pro is produced by IMPLAN Group, LLC.
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As data center employees and businesses (like construction contractors for data centers, power
companies that supply data centers, and data center equipment suppliers) spend the money that they
were paid by data center companies, they create another indirect ripple of economic activity that is part
of the second-round effects of the data center industry.
There are many Virginia businesses that are part of the data center supply chain. To illustrate some of
the types of companies located in Virginia that benefit from the data center industry in Virginia and that,
in turn, generate economic activity in the state, in Table 1 we list a few different types of businesses in
the Virginia data center supply chain. The list of businesses in Table 1 is not an endorsement, promotion,
or commendation of them, and it is far from a complete list of companies. We only provide it to
illustrate some of the types of businesses that are part of the second ripple effect of economic activity
related to spending by data centers.
Table 1. Some Businesses Serving Virginia Data Centers
Company
Line of Business
Anord Mardix
data center power distribution and management products and services
Compu Dynamics
data center design, construction, optimization, and maintenance
Fulcrum Collaborations
data center facilities management cloud-based platform
Hanley Energy
data center energy management services
Interglobix
data center and fiber interconnectivity consulting and marketing
Metro Fiber Networks
carrier-neutral fiber connecting Virginia Beach to Henrico data centers
Power Distribution
Incorporated
data center power transformation, distribution, and monitoring
Rosendin Electric
data center design and construction services
Submer
data center IT hardware immersion cooling
Technoguard
data center materials, cleaning, decontamination, and disaster recovery
Timmons Group
data center site certification and development
Windward Consulting
data center management consulting
In addition to the economic effects in the Virginia state and local economies of the data center-to-other
business transactions, there are also the second-round economic effects associated with data center
employee-to-business transactions that ripple through local economies. These effects occur when data
center employees buy groceries; pay rent; go out for dinner, entertainment, or other recreation; pay for
schooling in Virginia; or make other local purchases. Additionally, there are the second-round economic
effects of business-to-business transactions between the direct vendors to data centers and their
suppliers.
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The total impact is simply the sum of the first round direct and second round impacts. These categories
of impact are then further defined in terms of employment (the jobs that are created), labor income
(the pay and benefits associated with those jobs), and economic output (the total amount of economic
activity that is created in the economy).
VIRGINIA STATEWIDE
We estimate that in 2018 the data center industry in Virginia directly provided approximately:
• 14,644 full-time-equivalent jobs,
• $1.9 billion in associated employee pay and benefits, and
• $4.5 billion in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on Virginia from the data center industry in 2018 was approximately:
• 45,290 full-time-equivalent jobs,
• $3.5 billion in associated employee pay and benefits, and
• $10.1 billion in economic output.
Table 2. Economic Impact of the Data Center Industry in Virginia in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
14,644
14
$1,908,963,000
$4,541,390,000
2
nd
Round Indirect and Induced Effects
15
Operations
23,796
$1,223,797,000
$4,566,184,000
Healthcare
1,932
$152,433,000
$292,468,000
Construction
4,918
$263,018,000
$690,126,000
16
Total Impact
Total Economic Impact in Virginia Statewide
17
45,290
$3,548,212,000
$10,090,168,000
14
Data Source: Virginia Economic Development Partnership.
15
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
16
Derived from Virginia Economic Development Partnership Announcements.
17
The statewide estimates of jobs, pay, and economic output is larger than the sum of the individual regional estimates
reported separately in the following tables because the regional totals only register jobs, pay, and economic output in a region
caused by the direct data center investment in the same region. The regional amounts do not count jobs, pay, and economic
output generated in one region caused by direct data center investment that occurred in another region.
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CENTRAL VIRGINIA
We estimate that in 2018 the data center industry in Central Virginia directly provided approximately:
• 1,275 full-time-equivalent jobs,
• $141.5 million in associated employee pay and benefits, and
• $341.4 million in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on Central Virginia from the data center industry in 2018 was approximately:
• 5,248 full-time-equivalent jobs,
• $347 million in associated employee pay and benefits, and
• $1 billion in economic output.
Table 3. Economic Impact of the Data Center Industry in Central Virginia in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
1,275
18
$141,500,000
$341,382,000
2
nd
Round Indirect and Induced Effects
19
Operations
2,042
$105,729,000
$407,868,000
Healthcare
144
$11,812,000
$22,584,000
Construction
1,787
$87,949,000
$244,267,000
20
Total Impact
Total Economic Impact in Central Virginia
5,248
$346,990,000
$1,016,102,000
18
Data Source: Virginia Economic Development Partnership.
19
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
20
Derived from Virginia Economic Development Partnership Announcements.
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HAMPTON ROADS
We estimate that in 2018 the data center industry in Hampton Roads directly provided approximately:
• 1,322 full-time-equivalent jobs,
• $72.6 million in associated employee pay and benefits, and
• $329.4 million in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on Hampton Roads from the data center industry in 2018 was approximately:
• 3,510 full-time-equivalent jobs,
• $166.2 million in associated employee pay and benefits, and
• $667.6 million in economic output.
Table 4. Economic Impact of the Data Center Industry in Hampton Roads in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
1,322
21
$72,565,000
$329,362,000
2
nd
Round Indirect and Induced Effects
22
Operations
1,804
$73,436,000
$287,200,000
Healthcare
76
$5,466,000
$10,764,000
Construction
309
$14,775,000
$40,288,000
23
Total Impact
Total Economic Impact in Hampton Roads
3,510
$166,241,000
$667,614,000
21
Data Source: Virginia Economic Development Partnership.
22
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
23
Derived from Virginia Economic Development Partnership Announcements.
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NORTHERN VIRGINIA
We estimate that in 2018 the data center industry in Northern Virginia directly provided approximately:
• 10,663 full-time-equivalent jobs,
• $1.6 billion in associated employee pay and benefits, and
• $3.5 billion in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on Northern Virginia from the data center industry in 2018 was approximately:
• 28,196 full-time-equivalent jobs,
• $2.6 billion in associated employee pay and benefits, and
• $6.9 billion in economic output.
Table 5. Economic Impact of the Data Center Industry in Northern Virginia in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
10,663
24
$1,554,239,000
$3,517,485,000
2
nd
Round Indirect and Induced Effects
25
Operations
13,692
$786,373,000
$2,744,347,000
Healthcare
1,397
$121,517,000
$221,932,000
Construction
2,445
$163,753,000
$382,561,000
26
Total Impact
Total Economic Impact in Northern Virginia
28,196
$2,625,883,000
$6,866,325,000
The Northern Virginia Community College Programs
Northern Virginia Community College (NOVA) has developed programs to help address the challenges
that data centers in the Northern Virginia area have meeting their staffing needs. Amazon Web Services
(AWS) has a paid apprenticeship program at the NOVA.
27
In December 2018, the program graduated its
first students into full-time Associate Cloud Consultant jobs with AWS.
NOVA also has a 2-year Associate of Applied Science program to train Datacenter Operations
Technicians.
28
The program includes lab training at a training data center that the State of Virginia built
on the NOVA-Loudoun Campus. The program started with 19 students in its very first year, almost half
of them have already found internships or full-time jobs in Northern Virginia data centers or full-time
jobs with companies that work for data centers.
24
Data Source: Virginia Economic Development Partnership.
25
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
26
Derived from Virginia Economic Development Partnership Announcements.
27
NOVA, “Amazon and Northern Virginia Community College Announce Graduation of the First Veteran Technical
Apprenticeship Cohort on the East Coast,” December 12, 2018.
28
NOVA 2019-2020 Catalog, Engineering Technology: Data Center Operations Specialization, A.A.S.
NVTC 2020 Data Center Report
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SOUTHERN VIRGINIA
We estimate that in 2018 the data center industry in Southern Virginia directly provided approximately:
• 568 full-time-equivalent jobs,
• $33 million in associated employee pay and benefits, and
• $137.2 million in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on Southern Virginia from the data center industry in 2018 was approximately:
• 1,236 full-time-equivalent jobs,
• $57.5 million in associated employee pay and benefits, and
• $237.4 million in economic output.
Table 6. Economic Impact of the Data Center Industry in Southern Virginia in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
568
29
$33,030,000
$137,223,000
2
nd
Round Indirect and Induced Effects
30
Operations
637
$22,286,000
$96,006,000
Healthcare
32
$2,228,000
$4,159,000
Construction
31
Total Impact
Total Economic Impact in Southern Virginia
1,236
$57,544,000
$237,388,000
29
Data Source: Virginia Economic Development Partnership.
30
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
31
VEDP registered no data center investment announcements in 2018 in Southern Virginia, and therefore we do not estimate
construction activity in the area. However, it is important to note that we attribute construction only to the first year of an
announcement and, unlike ongoing data center operations, construction is episodic. For example, we estimate that as recently
as 2016, Southern Virginia enjoyed approximately $50 million in data center construction. This estimate may actually
understate the actual economic impact of data center construction.
NVTC 2020 Data Center Report
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SOUTHWESTERN VIRGINIA
We estimate that in 2018 the data center industry in Southwestern Virginia directly provided
approximately:
• 135 full-time-equivalent jobs,
• $8.6 million in associated employee pay and benefits, and
• $28.9 million in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on Southwestern Virginia from the data center industry in 2018 was approximately:
• 257 full-time-equivalent jobs,
• $13.1 million in associated employee pay and benefits, and
• $45.8 million in economic output.
Table 7. Economic Impact of the Data Center Industry in Southwestern Virginia in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
135
32
$8,552,000
$28,869,000
2
nd
Round Indirect and Induced Effects
33
Operations
113
$3,940,000
$15,787,000
Healthcare
8
$532,000
$1,031,000
Construction
1
$27,000
$80,000
34
Total Impact
Total Economic Impact in Southwestern
Virginia
257
$13,051,000
$45,767,000
32
Data Source: Virginia Economic Development Partnership.
33
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
34
Derived from Virginia Economic Development Partnership Announcements. However, it is important to note that we
attribute construction only to the first year of an announcement and, unlike ongoing data center operations, construction is
episodic. This estimate may actually understate the actual economic impact of data center construction.
NVTC 2020 Data Center Report
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VALLEY
We estimate that in 2018 the data center industry in the Valley directly provided approximately:
• 191 full-time-equivalent jobs,
• $14.3 million in associated employee pay and benefits, and
• $46.1 million in economic output.
Taking into account the economic ripple effects generated by that direct impact, we estimate that the
total impact on the Valley from the data center industry in 2018 was approximately:
• 461 full-time-equivalent jobs,
• $24.9 million in associated employee pay and benefits, and
• $86.6 million in economic output.
Table 8. Economic Impact of the Data Center Industry in the Valley in 2018 (2018 dollars)
1
st
Round Direct Effects
Jobs
Pay
Economic Output
Data Centers
191
35
$14,255,000
$46,088,000
2
nd
Round Indirect and Induced Effects
36
Operations
255
$9,555,000
$38,439,000
Healthcare
15
$1,046,000
$2,041,000
Construction
37
Total Impact
Total Economic Impact in the Valley
461
$24,856,000
$86,568,000
35
Data Source: Virginia Economic Development Partnership.
36
The methodology for estimating and characterizing 2
nd
round effects is described in detail in the separate Appendix that
accompanies this report.
37
No data center investment announcements were made in 2018 in the Valley. However, it is important to note that we
attribute construction only to the first year of an announcement and, unlike ongoing data center operations, construction is
episodic. This estimate may actually understate the actual economic impact of data center construction.
NVTC 2020 Data Center Report
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State and Local Taxes Generated by Data Centers in Virginia
Data centers pay millions of dollars in state and local taxes in Virginia, even though Virginia has a sales
and use tax exemption on some equipment for data centers that are large enough to qualify for the
exemption. All data centers (large and small) pay state employer withholding taxes and corporate
income tax. At the local level, both large and small data centers pay real estate taxes, tangible personal
property taxes, business license taxes, and industrial utilities taxes. Additionally, many data centers still
must pay state sales and use taxes on their purchases of data center equipment because they are not
large enough to qualify for the Virginia data center incentive.
In addition to the taxes that data centers pay directly, the economic activity that they generate also
results in additional tax collections. Figure 4 illustrates the sources of tax revenues associated with data
centers. On the bottom row, data centers pay taxes directly to federal, state, and local governments. On
the second row, the employees and business suppliers that are paid directly by the data centers also pay
taxes; and, additionally, on the third row, the people and businesses that are paid by the employees and
suppliers of data centers pay taxes. All of these sources of tax revenue are included in the tax revenue
estimates described in this report.
Figure 4. Sources of Tax Revenue Associated with Data Centers
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STATEWIDE AND REGIONAL TAX COLLECTIONS ASSOCIATED WITH DATA CENTERS
In addition to the taxes paid directly by data centers, local governments and the Commonwealth of
Virginia collect tax revenue from the secondary indirect and induced economic activity that data centers
generate. Table 9 shows our estimates of the taxes directly and indirectly generated by the data center
industry statewide in Virginia and in each of the six sub-state regions in 2018 through that first round
and second round economic activity.
We estimate that in 2018, data centers were directly and indirectly responsible for generating $600.1
million in state and local tax revenue in Virginia.
Table 9. Tax Revenue Directly and Indirectly Generated by the Data Centers Industry in Virginia in 2018
Region
State and Local Taxes
Collected
Federal Taxes
Collected
Total Taxes
Collected
Central Virginia
$37,231,000
$83,069,000
$120,300,000
Hampton Roads
$21,260,000
$38,624,000
$59,885,000
Northern Virginia
$460,534,000
$587,517,000
$1,048,051,000
Southern Virginia
$7,823,000
$13,643,000
$21,466,000
Southwestern Virginia
$1,469,000
$2,945,000
$4,414,000
Valley
$2,985,000
$5,745,000
$8,731,000
Virginia Statewide
38
$600,120,000
$812,308,000
$1,412,428,000
CONTRIBUTION TO LOCAL GOVERNMENT BUDGETS
Because the data centers need more equipment and utilities than they need employees, the data center
industry provides a large amount of property tax revenue for local governments. Additionally, the
industry also places downward pressure on overall tax rates, thereby improving the locality’s business
climate and economic attractiveness.
High Local Benefit to Cost Ratio
Data centers provide a high benefit to cost ratio in terms of the tax revenue they generate relative to
the government services that they and their employees require. Loudoun County, Prince William
County, and Henrico County are home to the most significant concentrations of data centers in Virginia.
County staff in those localities were able to provide us with detailed data on the tax revenue generated
by this industry in each locality from real and business personal property taxes.
39
As a result, we are able
38
The statewide estimates of taxes collected is larger than the sum of the taxes collected in the individual regions separately
because the regional totals only register tax revenue in a region caused by the direct data center investment in the same
region. The regional amounts do not count taxes generated in one region caused by direct data center investment that
occurred in another region.
39
It should be noted that, of necessity, these estimates exclude BPOL and other local taxes that also apply to the data center
industry. As a result, the revenue estimates provided almost certainly under-estimate the actual local tax revenues of the data
center industry.
NVTC 2020 Data Center Report
20
to use those data in combination with data from other sources to compute the benefit to cost ratio
associated with the data center industry in each locality.
To quantify the budgetary cost that the data center industry and its employees imposed on these
localities in 2018, we use data from the Virginia Department of Education on local elementary and
secondary education expenditures per student, and data from the Virginia Auditor of Public Accounts on
local non-education expenditures per county resident. This approach focuses on the largest costs that
any business imposes on a local government – the costs associated with providing primary and
secondary education, and other county services, to the employees of that business.
Table 10 details the calculations used to estimate the budgetary cost that the data center industry and
its employees imposed on each of these three counties in 2018. As shown, we estimate those costs to
be approximately $400,000 in Henrico County, $17.7 million in Loudoun County, and $2 million in Prince
William County.
Table 10. Estimate of Total Budgetary Costs Imposed by the Data Center Industry and Employees in 2018
Henrico
County
Loudoun
County
Prince
William
County
County Private Sector Employment in Data
Processing, Hosting, and Related Services in 2018
40
115
2,278
241
Students per Employee
41
0.27
0.48
0.69
Per Student County Education Expenditures
42
$4,852
$10,069
$5,296
Total Education Costs
43
$150,000
$11,005,000
$886,000
County Residents per Employee
44
1.72
2.41
3.59
Per Resident Non-Education County Expenditures
45
$1,477
$1,216
$1,294
Total Non-Education Costs
46
$292,000
$6,667,000
$1,120,000
TOTAL COSTS
47
$442,000
$17,672,000
$2,006,000
40
Data Source: U.S. Bureau of Labor Statistics.
41
Data Source: Virginia Department of Education and U.S. Bureau of Labor Statistics. Derived by dividing total county
elementary and secondary school enrollment in 2018 by total county employment in 2018.
42
Data Source: Virginia Department of Education.
43
Calculated as county private sector employment in the data center industry in 2018, times students per employee, times per
student education expenditures.
44
Data Source: U.S. Census Bureau and U.S. Bureau of Labor Statistics. Calculated by dividing total county population in 2018 by
total county employment in 2018.
45
Data Source: Virginia Auditor of Public Accounts and U.S. Census Bureau. Derived by dividing total county non-educational
expenditures in 2018 by total county population in 2018.
46
Derived as county private sector employment in the data center industry in 2018, times county residents per employee, times
per resident non-education expenditures.
47
Derived as the sum of total education costs and total non-education costs.
NVTC 2020 Data Center Report
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As shown in Table 11, combining the estimates of budgetary cost from Table 9 with data from each of
the localities on the local revenue generated by the data center industry shows that in 2018 the
benefit/cost ratio associated with the industry was:
• 8.6 in Henrico County. Which means that for every $1.00 in county expenditures that the data
center industry was responsible for generating in 2018, it provided approximately $8.60 in tax
revenue.
• 15.1 in Loudoun County. Which means that for every $1.00 in county expenditures that the data
center industry was responsible for generating in 2018, it provided approximately $15.10 in tax
revenue.
• 17.8 in Prince William County. Which means that for every $1.00 in county expenditures that the
data center industry was responsible for generating in 2018, it provided approximately $17.80 in
tax revenue.
Table 11. Estimated Benefit/Cost Ratio Associated with the Data Center Industry and Employees in 2018
Locality
Estimated Tax
Revenue (Benefit)
Estimated Budgetary
Cost
Benefit/Cost Ratio
Henrico County
$3,784,000
$442,000
8.6
Loudoun County
$266,623,000
$17,672,000
15.1
Prince William County
$35,802,000
$2,006,000
17.8
Reduces the Tax Burden on Local Residents and Lowers Tax Rates
One of the most useful concepts in economics is the concept of opportunity cost – what is the cost of
not doing something? Or in this case, what would have been the cost to these localities if their data
centers had not existed in 2018? The obvious answer is that they would not have received the estimated
$306.2 million in county tax revenue that this industry provided in 2018. Therefore, in order to maintain
county expenditures at the same level, that revenue would have had to come from other sources. The
two most likely sources would have been: 1) additional education funding from the state triggered by
the negative impact that this loss in tax base would have had on the composite index formula Virginia
uses to allocate education funding to localities, and 2) an increase in each county’s real property tax
rate.
On average, the state of Virginia funds 55 percent of primary and secondary education expenditures,
and localities are required to locally fund the remaining 45 percent.
48
But, that local funding percentage
is adjusted up or down based on each locality’s “ability to pay” as measured by Virginia’s composite
index formula that takes into account the locality’s property tax base, adjusted gross income, and
48
In actuality, however, baseline local funding percentages are typically higher than 45 percent because of local initiatives.
NVTC 2020 Data Center Report
22
taxable retail sales. Of these three factors, property tax base receives the highest weight (50 percent)
and, therefore, has the largest influence on the final calculation.
49
The 2018 composite index for Henrico County was 0.4183, for Loudoun County 0.5383 and for Prince
William County 0.3783.
50
If we recalculate those indexes to take into account the loss of tax base implied
by the $306.2 million loss in tax revenue that would have occurred if the data center industry had not
existed in these localities, those indexes fall to 0.4162, 0.5065, and 0.3692 respectively.
As shown in Table 12, according to our estimates, this means that the state would have had to reallocate
$55.8 million in state education funding away from other Virginia localities to provide $1 million in
additional formula-driven funding to Henrico County, $44.3 million in additional funding to Loudoun
County, and $10.5 million in additional funding to Prince William County.
Table 12. Estimated Additional Revenue Required to Compensate for Loss of the Data Center Industry in
2018 by Source
Locality
Revenue Loss
State Education
Funding Off-Set
Additional Local Tax
Revenue Required
from Other Sources
Henrico County
($3,784,000)
$1,043,000
$2,741,000
Loudoun County
($266,623,000)
$44,285,000
$223,338,000
Prince William County
($35,802,000)
$10,465,000
$25,337,000
Total*
($306,210,000)
$55,794,000
$250,416,000
*May not sum due to rounding
49
Virginia Department of Education. The actual formula weights each locality’s property tax base by 0.5, adjusted gross income
by 0.4, and taxable retail sales by 0.1. Each metric is then divided by school population and total population and those per
capita figures are divided by the average across all localities to determine ability to pay. The per capita figures are then
themselves weighted with each per capita school population metric receiving a weight of 0.66 and each per capita population
metric receiving a weight of 0.33.
50
Virginia Department of Education.
NVTC 2020 Data Center Report
23
The remaining $250.4 million in lost tax revenue would likely have been made up through increased
property taxes (by far the largest source of revenue for most localities). Figure 8 depicts our estimate of
the increase in each County’s real property tax rates that would have been required to generate this
$250.4 million in lost tax revenue. As shown:
• Henrico County’s real property tax rate would have likely had to increase from $0.870 per $100
of assessed value to $0.883 (a 1 percent increase),
• Loudoun County’s real property tax rate would have likely had to increase from $1.085 per $100
of assessed value to $1.313 (a 21 percent increase), and
• Prince William County’s would have likely had to increase from $1.125 per $100 of assessed
value to $1.200 (a 7 percent increase).
Figure 5. Estimated County Real Property Tax Rates per $100 of Assessed Value with and without the
Data Center Industry
$0.870
$1.085
$1.125
$0.883
$1.313
$1.200
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Henrico County Loudoun County Prince William County
With Data Centers Without Data Centers
NVTC 2020 Data Center Report
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Data Center Incentives in Virginia
Data centers in Virginia can qualify for two types of incentives: those offered by the state of Virginia and
those offered by individual localities.
VIRGINIA’S STATE INCENTIVES
At the state level, two incentives are offered: a sales and use tax exemption and a single sales
apportionment incentive. According to the Joint Legislative Audit and Review Commission (JLARC), the
single sales apportionment incentive has not been used by any data centers as of fiscal year 2017 (the
latest year that data is available), so we will not give more attention to it in this report.
51
The sales and use tax exemption is available to data centers that make a minimum new capital
investment of $150 million and that create a minimum of 50 new jobs in a Virginia locality. If the data
center is located in an enterprise zone or in a locality with an unemployment rate at least 1.5 times the
average statewide unemployment rate, the minimum new job requirement is reduced to 25. Each new
job must pay at least 150 percent of the annual average wage in the locality where the data center
is located. Tenants of colocation data centers that qualify for the incentive may also receive the sales
and use tax exemption. According to the JLARC, as of fiscal year 2017, 24 data centers had qualified for
the incentive, plus 135 colocation data center tenants.
52
According to JLARC’s latest report, in fiscal year
2018, $86 million of sales and use tax was exempted under the incentive.
53
JLARC’s Evaluation and Findings
In June of 2019, Virginia’s Joint Legislative Audit and Review Commission published an evaluation of the
state’s data center incentive using confidential tax information that is not publicly available.
54
JLARC found that 90 percent of the data center investment made by the companies that received the
sales and use tax exemption would not have occurred in the state of Virginia without the incentive.
Instead, that 90 percent of data center investment would have occurred in states other than Virginia. So,
the “cost” of the State data center incentive is only 10 percent of the amount of State sales tax revenue
exempted. Using the confidential tax information, JLARC estimated the economic and government
budgetary impact, not of the total data center industry in Virginia (as we have done in this report), but
specifically, of Virginia’s data center sales and use tax exemption.
55
51
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives Economic Development Incentives
Evaluation Series. June 17, 2019. (JLARC, Data Center Evaluation)
52
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives, Economic Development Incentives
Evaluation Series. June 17, 2019.
53
Joint Legislative Audit and Review Commission, Economic Development Incentives 2019, Spending and Performance.
December 16, 2019.
54
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives, Economic Development Incentives
Evaluation Series. June 17, 2019.
55
Appendix N: Results of economic and revenue impact analyses.
NVTC 2020 Data Center Report
25
Table 13 shows the text of Appendix N from the JLARC report with JLARC’s calculations of the amount of
State tax revenue exempted by the Virginia incentive; the amount of additional State tax revenue that
was generated by the investment of the data centers that received the tax incentive; the net impact of
the incentive on the State budget (additional tax received minus tax revenue exempted); net new jobs
added, net additional state gross domestic product (GDP) generated, and net new worker pay generated
throughout the statewide economy as a result of the investment by data centers that received the
incentive. Table 13 shows data for the fiscal years 2013 through 2017. This is the most recent data
available that covers the years when the current version of Virginia’s data center incentive has been
implemented. The General Assembly made significant revisions to the data center incentive in 2012.
Table 13. Economic and Tax Impacts of Virginia’s Sales and Use Tax Exemption for Data Centers
56
With Data
Center
Incentive
FY2013
FY2014
FY2015
FY2016
FY2017
State Tax
Revenue
Exempted
($81,298,000)
($80,131,000)
($93,249,000)
($54,757,000)
($54,516,000)
Additional State
Tax Revenue
$44,548,000
$49,705,000
$64,494,000
$54,742,000
$59,171,000
Net State
Budgetary
Impact
($36,751,000)
($30,426,000)
($28,755,000)
($15,000)
$4,655,000*
State Revenue
Recovered per
$1 of State
Revenue
Exempted
$0.55
$0.62
$0.69
$1.00
$1.09
Net Additional
Jobs
11,631
12,168
14,138
9,968
10,324
Net Additional
State GDP
$1,594,238,000
$1,838,394,000
$2,268,541,000
$1,862,303,000
$2,028,606,000
Net Additional
Worker Pay
$852,123,000
$987,672,000
$1,238,666,000
$1,022,226,000
$1,126,545,000
* In 2017, the data center tax incentive generated more State tax revenue than it exempted.
56
Data Source: Appendix N: Results of Economic and Revenue Impact Analyses.
NVTC 2020 Data Center Report
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The appendix to the JLARC report shows that
• In 2017, the State took in $1.09 in state tax revenue from data center related activity for every
$1 of potential state tax revenue that was exempted from qualifying data centers.
• In 2016, the data center incentive was revenue neutral – it generated one dollar in additional
state tax revenue for every dollar of potential state tax revenue that it exempted.
• In every year since the data center incentive was modified in 2012, the State recovered the
majority of the state tax revenue that was exempted from qualifying data centers.
• From 2013 through 2017, on average the State recovered 75 cents in state tax revenue for every
dollar of potential tax revenue exempted from qualifying data centers.
57
Virginia’s Incentive is One of the Most Restrictive
Virginia’s data center incentive is structured so that it is only available to data centers that bring a
certain minimum number of jobs and a minimum amount of investment to the state. In order to qualify,
a data center must invest at least $150 million and add 50 new jobs to the local economy paying 50
percent more than the average annual wage in the locality (only 25 new jobs are required in
unemployment distressed localities). These restrictions incentivize data center companies to make
sizable investments in property and employment in the state.
Virginia’s data center incentive is very stringent in terms of the number of new jobs required to qualify
for it. Of the 31 states that actively offer data center incentives, only 11 require a minimum number of
new jobs to qualify for an incentive, and only Virginia, Mississippi, and Nevada require the creation of 50
or more new jobs. In terms of the minimum amount of investment required to qualify for an incentive,
Virginia’s incentive is more restrictive than most other states. Only seven states (Alabama, Georgia,
Illinois, Iowa, Nebraska, Oregon, and Texas) require a higher amount of investment in order to receive
the state’s most attractive incentive (and Alabama, Georgia, Iowa, Nebraska, and Texas all have
graduated incentive criteria, so that lesser investments may still qualify for incentives). At the same
time, 16 states offer their most attractive incentive to data center investments that are half as large as
the amount that Virginia requires to qualify for its incentive.
57
The JLARC report states that the data center incentive recovered 72 cents in state tax revenue for every dollar of potential tax
revenue exempted from qualifying data centers. That conclusion is based on including the years 2010 through 2012, prior to
the significant change made to the incentive in 2012. The 75-cent estimate more accurately reflects current state policy.
NVTC 2020 Data Center Report
27
Figure 6 shows how the investment and job creation criteria in different states compare. The closer a
state is to the lower-left corner of the graph, the less restrictive are the criteria to qualify for the state’s
most attractive incentive.
Figure 6. Minimum Investment and Job Creation Criteria for State Data Center Incentives
58
JLARC’s Primary Recommendation
In its evaluation, JLARC made some administrative and exploratory recommendations regarding the
State’s data center incentive. Its primary recommendation was for the General Assembly to consider
“reduc[ing] or remov[ing] the minimum job creation requirement of the sales and use tax exemption for
data centers locating in a distressed area or an enterprise zone.”
59
JLARC suggested that a lower job
creation threshold could encourage more data center growth in rural areas, based on its discussions
with data center industry representatives.
Because of reduced availability and rising prices of land in Northern Virginia, data centers are likely to
seek lower cost locations elsewhere in Virginia or outside of the state. Virginia has the opportunity to
58
A list and brief description of state incentives is located in the separate accompanying Appendix.
59
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives, Economic Development Incentives
Evaluation Series. June 17, 2019.
MI, NM, NY, OK, UT, WA, WV, WI
MN
AZ, PA, WY
NC
KY, OH
FL, IN, MT
IA, OR
GA
MO, ND
TN
IL
AL
SC
NE
TX
MS
NV
VA
$0
$100
$200
$300
$400
$500
$600
0 10 20 30 40 50 60
Minimum New Investment (millions)
Minimum New Jobs
Qualification Criteria for Most Attractive Incentive
NVTC 2020 Data Center Report
28
continue to attract data centers to lower cost locations within the state, if the incentive requirements
stay competitive. However, the 50-job requirement is hard to meet for data centers that are not larger
than $300 million in capital investment. JLARC found that “one job is generally associated with $6.3
million in capital investment. Thus, a $150 million investment would be expected to create 24 jobs, on
average.”
60
As shown in Figure 9, Virginia, Mississippi, and Nevada are the only states that have a 50-job
requirement to receive the most attractive incentive.
Areas of Virginia that are relatively more distressed could benefit significantly from data centers which
are important sources of tax revenue, but which do not require substantial, costly local government
services. However, according to JLARC, generally, distressed regions do not already have the skilled
workforce in place that is necessary for data center operation, and it is often difficult to relocate
workers from other locations. According to JLARC, “Savings from the exemption can provide resources
to address these challenges.”
61
JLARC concluded that “The best approach at this time may be to reduce or remove the minimum job
creation threshold in distressed areas and enterprise zones … to encourage data center growth in these
areas.”
62
Incentives have been Instrumental in the Development of Virginia’s High-Tech
Infrastructure
The way that the high-tech industry has developed in Virginia is instructive as to the value of the data
center incentive. The earliest data centers began to cluster around Ashburn, Virginia at the dawn of the
internet because that was one of the four original network access points serving the entire country. In
2010, Microsoft began building its data center in Mecklenburg County after Virginia had enacted its
initial data center incentive bill. However, the growing industry did not begin to boom until after the
General Assembly strengthened and expanded Virginia’s data center tax incentive in 2012. The fiber
installed to support the large data center investments in Northern Virginia and Southern Virginia
allowed for a dramatic expansion of the industry in Virginia. As a result, Northern Virginia overtook the
New York City area in 2015 as the world’s largest data center market.
This expansion provided the impetus for Microsoft and Facebook to invest in bringing the MAREA
subsea cable to Virginia Beach, instead of only relying on the transatlantic cables that land in the New
York City area. Simultaneously, Telxius invested in the BRUSA cable connecting Virginia Beach to Puerto
Rico and Brazil. The cable landing station in Virginia Beach has attracted the Globalinx, NextVN, and
PointOne data centers to Virginia Beach. Virginia is recognized worldwide for its high-tech physical
60
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives, Economic Development Incentives
Evaluation Series. June 17, 2019.
61
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives, Economic Development Incentives
Evaluation Series. June 17, 2019.
62
Joint Legislative Audit and Review Commission, Data Center and Manufacturing Incentives, Economic Development Incentives
Evaluation Series. June 17, 2019.
NVTC 2020 Data Center Report
29
infrastructure (conventional and renewable electric power facilities, terrestrial and subsea fiber
networks, and data centers) as well as for its high-tech workforce.
The DP Facilities data center that opened in Wise County in 2017 takes advantage of the MidAtlantic
Broadband Communities Corporation fiber connections to the MAREA subsea cable. The data centers in
Northern Virginia and the cable landing station in Virginia Beach attracted Facebook to invest in its large
data center in Henrico County, midway between the two locations. Additionally, QTS has connected its
large data center and network access point in Henrico County to the subsea cables in Virginia Beach,
offering very low latency connections to Europe and Brazil. Google is in the process of bringing its
DUNANT cable from northern Europe to Virginia Beach, and SAEx International has planned a global
cable system that will eventually connect Virginia Beach to Brazil, South Africa, India, and Singapore.
This system will provide a digital global superhighway, providing a unique four-continent link from Asia
to the Americas through Africa and creating a secure new submarine link that is able to avoid all the
common choke and risk points, such as the current network route through the Mediterranean and Red
Seas and the routes that are exposed to the seismic risks that exist in the Pacific Ring of Fire.
Data centers also are important for attracting other businesses to Virginia. For example, biotech firms
are extremely dependent on the storage and computing capacity of data centers for healthcare
innovations. This summer, after an extensive search, the biotech firm, Aperiomics chose Loudoun
County for its permanent corporate headquarters. Aperiomics is the only firm able to identify every
known bacterium, virus, fungus, and parasite. The company has created a new gold standard in
identifying the root cause of infectious diseases, allowing doctors to prescribe precise treatments for
specific infections. Aperiomics specifically identified the nearby access to data centers as one of the
reasons that it chose Loudoun County. “With its growing reputation as a major technology hub, access
to major data centers that allow us to maximize our Artificial Intelligence and genomic research and
quick access to major healthcare hubs across the East Coast, we cannot imagine a better place to call
home.”
63
The Virginia data center tax incentive sends a clear signal to potential investors worldwide that the
business climate in Virginia is friendly to the high-tech industry. Beyond reputation, the incentive
supports the investment in data centers, in conventional and renewable energy, in a robust fiber
network, and in a high-tech workforce.
The Incentive Helps to Attract Some Data Centers that Do Not Qualify for the Incentive
Data centers tend to cluster, with smaller data centers often locating adjacent to larger data centers.
Therefore, one data center that is attracted by the incentive can attract other data centers to take
advantage of the then existing local fiber and power infrastructure.
64
Some of these follow-on data
centers will be smaller than the larger data center projects that qualified for the tax incentive and may,
63
https://biz.loudoun.gov/2019/05/30/aperiomics-headquarters/
64
https://www.datacenterknowledge.com/industry-perspectives/finding-strength-numbers-data-center-clustering-effect
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themselves, not initially achieve the investment and job creation thresholds required to receive tax
benefit from the state.
Because large data centers that qualify for Virginia’s incentive help provide the infrastructure and
technology supply chain to attract smaller data centers that do not initially qualify for the incentive, the
incentive yields more data center investment than is measured by just counting the data centers that
qualify for the incentive. Virginia’s data center tax incentive plays an important role in attracting new
data centers to the state and in keeping them from moving to other states.
LOCAL INCENTIVES
Spurred by data center development in Northern Virginia, the growing importance of Virginia Beach as a
landing site for subsea cables that provide high-speed connectivity between Virginia and the rest of the
world, and Mid-Atlantic Broadband Communities Corporation’s pioneering work in providing high-speed
terrestrial connectivity in the southern half of Virginia, the data center industry is now spilling out from
Northern Virginia and spreading throughout the state. In no small part because of the exceptionally high
benefit to cost ratio that data centers provide to localities, many communities are working to take
advantage of this trend by making themselves more attractive to the data center industry.
As discussed elsewhere in this report, data centers are a very capital-intensive industry. As a result,
relative to less capital-intensive industries they are disproportionately and adversely impacted by taxes
on expensive and short-lived capital equipment such as servers and other computer equipment. To
address this disparity and provide a more welcoming business climate for data center development,
several Virginia localities have recently lowered the business personal property tax rates that they
charge to data centers.
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A listing of Virginia localities creating special property tax rates for data center equipment is provided in
Table 14. As this list shows, all of these communities are located in the corridor between the Richmond
metropolitan statistical area and Northern Virginia, in proximity to the high-speed subsea cable landings
in Virginia Beach, or, in the case of Danville, within the service area of the Mid-Atlantic Broadband
Communities Corporation.
Table 14. Localities with Reduced Property Tax Rates for Data Centers
Locality
Nominal Business Property Tax
Rate (per $100 assessed value)
65
Special Property Tax Rate for Data
Center Equipment
(per $100 assessed value)
Caroline County
$3.80
$1.25
66
Chesapeake
$4.08
$0.48
67
Chesterfield County
$3.60
$0.24
68
Danville
$3.50
$0.25
69
Fredericksburg
$3.40
$1.25
70
Goochland County
$3.95
$0.40
71
Henrico County
$3.50
$0.40
72
Prince William County
$3.70
$1.25
73
Spotsylvania County
$5.95
$1.25
74
Stafford County
$5.49
$1.25
75
Virginia Beach
$4.00
$0.40
76
65
Does not include assessment ratios, which reduces the effective tax rate over time.
66
Caroline County Economic Development. “Data Center Site”.
67
“Chesapeake City Council Makes Strategic Move to Attract Business in Data Center Sector”. CoVABiz, April 2018 and
Chesapeake Local Tax Rates.
68
“Chesterfield County Cuts Data Center Tax Rate to Lowest in Virginia”. Chesterfield Business News, April 2019 and
Chesterfield County Business Tax Rates.
69
John Crane. “Danville council OKs low rate for data centers”, GoDanRiver, October 2018.
70
Fredericksburg News. “Fredericksburg City Council Sets Highly Competitive Tax Rate for Data Centers,” April 2019.
71
Goochland County Fiscal Year 2020 Adopted Budget.
72
Henrico County Fiscal 2018-2019 Approved Budget.
73
Prince William County Tax Rates.
74
Spotsylvania County FY 2020 Adopted Budget.
75
Stafford County Tax Rates.
76
Virginia Beach Tax Rates.
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National Context for Virginia Incentives
Virginia is one of 31 states that actively offer incentives to attract data centers to locate in their states.
Figure 7 highlights the states with active data center incentives.
77
Figure 7. States with Active Data Center Incentives
In June of 2019, Illinois became the latest state to add a new data center incentive.
78
Although the
Chicago area is one of the largest data center markets in the United States, it was not keeping pace with
the growth of data centers in the markets of Northern Virginia, Dallas, and Phoenix – all states that
provide incentives to attract data center investment. Additionally, Illinois was failing to attract data
centers to the more rural parts of the state, while several large data centers had located across the
border in rural Iowa. The neighboring state of Indiana also strengthened its incentives in June 2019 by
77
North Dakota has an incentive that was capped and is no longer available to new data centers, so we do not count it as an
active incentive. In addition to the 31 states that have active specific incentives for data centers, four of the other states have
tax policies that are beneficial to data centers. Alaska and New Hampshire have no statewide sales tax; Delaware has no state
property or sales tax; and Kansas has no state property tax on equipment.
78
Ally Marotti. “Data center boosters hope new tax incentives 'stop the bleeding,' keep tech sites in Illinois,” Chicago Tribune,
June 2019.
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adding a sales and use tax exemption for data centers to its existing targeted property tax exemption.
79
Developers are hoping to attract data centers to the Indiana suburbs of Chicago.
The competition among states for data centers is keen, and data centers pay close attention to the
business climate in various states when making location decisions. States with existing incentives revise
and extend them from time to time to make them more attractive. In May of 2018, Georgia expanded its
data center tax incentive to include colocation data centers. Days after the governor of Georgia signed
the bill into law, the colocation provider Switch announced plans to begin construction on a one million
square foot data center campus in Atlanta.
80
Earlier this year, bills were introduced in the Pennsylvania
state legislature to expand data center incentives that were enacted in 2016.
81
After Illinois enacted a
data center incentive, Indiana revised its data center incentive to lengthen the amount of time that large
data centers could receive that state’s incentive.
82
WASHINGTON STATE HAS PROVEN THE EFFECTIVENESS OF INCENTIVES
Washington State is home to the corporate headquarters of Microsoft and Amazon. In 2007,
Washington’s Attorney General ruled the state’s data center incentives invalid. Microsoft and Yahoo
immediately halted construction on data center facilities in rural Quincy, Washington, and Microsoft
subsequently chose to move its Windows Azure cloud computing service to Texas. Facebook and
Amazon also cited state and local taxes as an important consideration in their decisions to construct
new data center facilities in Oregon.
Washington’s data center incentives were legislatively re-enacted in 2010, sparking a construction boom
and up to $2 billion in new private investment in the state. But, in 2011 the incentives lapsed, which
once again halted data center growth in Washington and was associated with $1 billion in new data
center investment by Adobe and Apple in Oregon. In 2012, Washington again re-enacted their data
center incentives, only to fail to reauthorize them in 2014. At least one major software company cited
that lack of reauthorization as a motivating factor in its decision to build a new $1.1 billion data center in
Iowa. Washington then re-enacted its data center incentives yet again in July 2015. The current
incentive is only available in rural counties. This restriction in Washington has led to a boom in the
colocation data center market in the suburbs of Portland, Oregon, just across the border from
Washington State.
83
The state is debating revising the incentive again to remove the restriction to rural
counties.
84
79
Dan Carden. “Tax incentives for Hammond data center advance to governor for final approval,” The Times, April 2019.
80
Switch. “Georgia Governor Nathan Deal Signs “Switch Bill” Data Center Tax Exemption Legislation.”
81
General Assembly of Pennsylvania, House Bill 1088, Session of 2018.
82
Alex Brown. “Governor Signs Data Center Incentive Bill,” Inside Indiana Business, June 2019.
83
Washington State Department of Commerce, State of the Data Center Industry An Analysis of Washington’s Competitiveness
In This Fast-Growing High-Tech Field, January 2018.
84
The Herald Editorial Board. “Editorial: Tax break could bring more data centers to state,” HeraldNet, March 2018.
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Conclusion
Life is increasingly digitized, and our digitized lives are stored, secured, processed, enhanced, and
distributed by data centers. Our finances, communications, health care, recreation, entertainment,
education, transportation, work, and social lives are often and increasingly online. Data centers are
more than just the redundant warehouses for our digital lives. They are also the generators of much of
the interactive digital content that we use. The personalized shopping recommendations; the on-the-fly
driving directions; the online assistance selecting a restaurant, hotel, plane flight; the digital grocery
coupons; the machine responses to banking and billing inquiries, etc. are all provided by data centers.
Because data centers use large amounts of costly electricity and water, they have emerged as leading
innovators at the forefront of increasing operational efficiency in the use of energy and water. Among
other innovations, data centers have used digitization, advanced sensors, and machine learning (within
data centers) to dramatically reduce energy and water consumption. For example, Google has been able
to reduce the amount of energy used for cooling in its data centers by up to 40 percent, reducing overall
energy usage in its data centers by 15 percent on top of previous efficiency enhancements.3 Data center
companies have also made large commitments to the purchase of energy from renewable sources here
in Virginia and nationwide. For utility companies to move to different and initially costlier sources of
renewable power, they need this kind of commitment to provide a stable demand to ensure that the
large upfront investments that are required are financially sustainable.
Northern Virginia is the largest data center market in the world, but the data center industry has an
important footprint in every part of the Commonwealth of Virginia. Central Virginia and Hampton Roads
each account for almost ten percent of overall industry employment in the state. Data center industry
pay has increased twice as fast as the statewide average since 2001.
We estimate that in 2018 the data center industry in Virginia directly provided approximately:
• 14,644 full-time-equivalent jobs with an average annual pay of $126,000,
• $1.9 billion in associated pay and benefits, and
• $4.5 billion in economic output.
Taking into account the economic ripple effects that direct investment generated, we estimate that the
total impact on Virginia from the data center industry in 2018 was approximately:
• 45,290 full-time-equivalent jobs,
• $3.5 billion in associated pay and benefits, and
• $10.1 billion in economic output.
Data centers pay millions of dollars in state and local taxes in Virginia, even though Virginia has a sales
and use tax exemption on some equipment for data centers that are large enough to qualify for the
exemption. All data centers pay state employer withholding taxes and corporate income tax. At the local
level, they pay real estate taxes, tangible personal property taxes, business license taxes, and industrial
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utilities taxes. Additionally, many data centers still must pay state sales and use taxes on their purchases
of data center equipment because they are not large enough to qualify for the Virginia data center
incentive. In addition to the taxes paid directly by data centers, local governments and the
Commonwealth of Virginia collect tax revenue from the secondary indirect and induced economic
activity that data centers generate. We estimate that in 2018, data centers were directly and indirectly
responsible for generating $600.1 million in state and local tax revenue in Virginia.
At the local level data centers provide far more in county or city tax revenue than they and their
employees demand in local government services. For example, we estimate that for every dollar in
county expenditures that the data center industry caused in 2018, it generated:
• $8.60 in local tax revenue in Henrico County, and property taxes there would have had to rise by
1 percent without the data center induced tax revenue.
• $15.10 in local tax revenue in Loudoun County, and property taxes there would have had to rise
by 21 percent without the data center induced tax revenue.
• $17.80 in tax revenue in Prince William County, and property taxes there would have had to rise
by 7 percent without the data center induced tax revenue.
In June of 2019, Virginia’s Joint Legislative Audit and Review Commission (JLARC) published an
evaluation of the state’s data center sales and use tax incentive. JLARC found that 90 percent of the data
center investment made by the companies that received the sales and use tax exemption would not
have occurred in the state of Virginia without the incentive. Instead, that data center investment would
have occurred in other states. So, the “cost” of the State data center incentive is only 10 percent of the
amount of State sales tax revenue exempted. In fact, in 2017, the data center tax incentive generated
$1.09 of State tax revenue for every dollar that it exempted; and in 2016, the incentive was revenue
neutral. Since 2013, after the General Assembly significantly revised the Virginia data center incentive,
the State has recovered 75 cents of every dollar of potential tax revenue that it exempted. In the
process it created thousands of Virginia jobs with billions of dollars in pay and benefits and billions of
dollars in economic activity throughout the state.
Virginia is one of 31 states that actively offer incentives to attract data centers to locate in their states.
Several states are in the process of revising their incentives to remain competitive. In May of 2018,
Georgia expanded its data center tax incentive to include colocation data centers. In 2019, bills were
introduced in Idaho to enact an incentive for the first time, and the Pennsylvania state legislature to
expand data center incentives that were enacted in 2016. After Illinois enacted a data center incentive
in 2019, Indiana revised its data center incentive to lengthen the amount of time that large data centers
could receive that state’s incentive. Also in 2019, the State of Washington debated whether to continue
restricting its incentive to rural counties, because of the loss of many colocation data centers to the
Portland area just across the border with Oregon-Washington border.
Virginia’s data center incentive is one of the most restrictive in the country. Of the 31 states that actively
offer data center incentives, only 11 require a minimum number of new jobs to qualify for an incentive,
and only Virginia, Mississippi, and Nevada require the creation of 50 or more new jobs. In its evaluation,
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JLARC recommended “reduc[ing] or remov[ing] the minimum job creation requirement of the sales and
use tax exemption for data centers locating in a distressed area or an enterprise zone.” JLARC suggested
that a lower job creation threshold could encourage more data center growth in rural areas. The 50-job
requirement is hard to meet for data centers that are not larger than $300 million in capital investment.
Virginia, Mississippi, and Nevada are the only states that have a 50-job requirement to receive each
state’s most attractive incentive. Areas of Virginia that are relatively more distressed could benefit
significantly from data centers which are important sources of tax revenue, but which do not require
substantial, costly local government services. However, according to JLARC, generally, distressed regions
do not already have the skilled workforce in place that is necessary for data center operations, and it is
often difficult to relocate workers from other locations.
Virginia’s incentive is more restrictive than most other states in terms of minimum investment. Only
seven states require a higher amount of investment in order to receive the state’s most attractive
incentive. At the same time, 16 states offer their most attractive incentive to data center investments
that are half as large as the amount that Virginia requires to qualify for its incentive.
Virginia’s data center incentive has been important in the spread of technology industries across the
Commonwealth and in attracting smaller data centers that do not qualify for the incentive to invest in
the state as well. Recently several localities have reduced their local property tax rates in order to
attract data centers to support their economies.
