Data Centers’ Impact on Local Economies
Top-of-Mind for Digital Infrastructure Leaders
This is the fourth in a series of five blog posts reflecting the top-of-mind issues discussed during the most recent Infrastructure Masons Advisory Council meeting, held in London in November. The Advisory Council is made up of end users and partners from across the digital infrastructure ecosystem.
In March 2018, the research firm RTI International published a report confirming a frequently quoted statistic about the multiplier effect of data centers: “For every 1 data center worker, there were 5 jobs supported elsewhere in the economy by operating expenditures – after the surge in jobs caused by capital expenditures.”
The RTI International report was funded by Facebook and analyzed the social media company’s U.S. data center fleet, focusing on how their construction and operation impact the economy, the environment, and communities. The data likely applies beyond Facebook as well, to most data centers in most U.S. communities.
A study prepared for Google in February 2018 examined the impact of Google’s significant investments in data centers and fiber infrastructure in Europe. Since 2007, Google has made EUR 4.3 billion (nearly $5 billion) in data-center related investment. The report, European data centres: How Google’s digital infrastructure investment is supporting sustainable growth in Europe, concluded that Google data centers have delivered large benefits to local communities across the European Union.
Specifically, during the period 2007-2017, Google’s data center investments in Europe supported 6,600 jobs per year on average. The multiplier effect has fluctuated depending on when the four data centers were under construction and when they were put into operation. The total job impact varies between roughly 2,500 and 13,000 jobs per year.
“For every 1 data center worker, there were 5 jobs supported elsewhere in the economy by operating expenditures – after the surge in jobs caused by capital expenditures.” – Click to tweet
That Google and Facebook funded such reports (and others have as well) reflects the fact that digital infrastructure leaders are committed to positively impacting local economies. But at the most recent Infrastructure Masons Advisory Council meeting, members were concerned that the message isn’t getting across.
Getting local authorities on your side
It’s essential that local authorities understand that message – that they understand, as the RTI International report said, for every $1 million in spending on data center operations, 13 jobs are supported elsewhere in the economy.
Advisory Council members said telling the story of economic development is essential for the future of digital infrastructure success. That’s in no small part because tax breaks and other incentives are often predicated on the community-wide economic development that a data center will bring.
“For every $1 million in spending on data center operations, 13 jobs are supported elsewhere in the economy.” – Click to tweet
“One of the things we’ve seen is that local legislators are starting to talk about rolling back incentives,” one partner said. “That is something that we as a company are concerned about. That’s a big concern for the industry.”
Understanding the ecosystem
One end user said he believes both the public and elected officials lack awareness about the impact of the digital infrastructure industry.
Tax revenues, job creation, and capital investment together drive economic growth in a region. Capital investment in a data center could be $50 million on the low end and up to $1 billion on the high end, depending on the type of facility. And there’s ongoing investment as well, of course, including a data center’s largest operating expense: energy. Jobs are created both directly and indirectly, which raises tax revenue.
But as one end user suggested, often people do not understand that full ecosystem and flow-through of direct invested dollars and what that means to GDP and economic activity in those specific countries and regions.
“People do not understand the full ecosystem and flow-through of direct invested data center dollars and what that means to GDP and economic activity in those specific countries and regions.” – Click to tweet
That end user’s company has also commissioned independent global studies to assess the impact of data centers. And they also found that “for every direct job that we provide, another 5 are created indirectly or induced because we’ve come into that city or region. And that’s billions of euros or dollars of GDP economic activity.”
But as the other Advisory Council members agreed, the end user said, “People are generally unaware of this impact. That’s a dangerous situation because [policymakers] start to regulate things they don’t really know well.”
“People are generally unaware of data centers’ broad economic impact. That’s dangerous because policymakers start to regulate things they don’t really know well.” – Click to tweet
The trouble with tariffs
Another dangerous situation – and perhaps another example of policymakers not understanding the full ecosystem – is the impact of federal steel tariffs on data center construction.
“Because of the way we do construction, tariffs are starting to play a big role in the costs of construction,” one partner said. “We don’t do a lot of pre-cast and inside of the building itself it’s all steel. We had to do a lot of pre-buy in the fall to shore up against the steel tariffs.”
Success in Nevada and Virginia
Not all policymakers lack an awareness of the impact of digital infrastructure.
For example, in November 2018, the Nevada Governor’s Office of Economic Development approved $25.2 million in tax abatements for a data center on 64 acres of land. Justifying the incentive, the state said that the $25 million tax abatement amount was standard for a project of this type and pointed out that the total incentive package was less than 5 percent of the company’s total 10-year investment projections.
Likewise, in Virginia, a Richmond-based research firm determined that the state has seen a strong return on its investment in attracting data centers. In Northern Virginia, for every dollar in county expenditures, the data center sector provided approximately $9.50 in tax revenue to Loudoun County and approximately $4.30 in tax revenue to neighboring Prince William County, the study concluded.
As the RTI International report says, multipliers represent how data center activities have a larger connection to the economy as a whole. Community impact extends far beyond the physical footprint of the data center.
Come back in two weeks for the 5th installment in our top-of-mind series and hear from the Advisory Council on Cryptocurrency.