Data center headlines have been filling newspapers each and every week. Among the myriad proposed developments across the state, one project in Ferguson stood out.
Ferguson officials recently rejected a tax subsidy proposal that would have granted substantial incentives for a data center project at the former Emerson campus. Specifically, the package included up to 15 years of tax abatements on real estate, personal property, and sales taxes.
Rejecting this tax subsidy for the development was the right decision. I want to stress that the Ferguson City Council did not reject the data center; it rejected the requested tax subsidy only.
For years, Show-Me Institute writers have been noting the problems with economic development subsidies. Governments should not be picking winners and losers, and data centers are no different.
However, many ignore these arguments and think that using incentives to attract a project could bring substantial jobs, invite tourism, and boost public morale. While maybe (strong emphasis on maybe) some could argue this about other projects, these arguments don’t apply to data centers.
The Emerson Campus formerly employed more than a thousand workers manufacturing automation products and providing engineering services. Modern data centers simply do not require that scale of employment.
At the same time, the concerns over electricity, water, and sound from data centers are well-known.
However, despite this, data centers can still provide a major benefit: significant tax revenue. They can provide so much revenue that local residents could see property tax cuts.
That is precisely why offering large tax abatements for these projects is especially misguided. Along with the cyber and electronic services we all use, tax revenue is the core benefit a data center can bring to a community. If local governments dramatically reduce those revenues through incentives, they are asking residents to absorb a lot of costs with little benefit.
A data center project at the Emerson campus could still be successful and economically beneficial without requiring massive local tax incentives. But too often, Missouri communities negotiate as though they have little to offer unless subsidies are attached.
They should think bigger than that. I wrote a recent op-ed on this very topic.
As debates around data centers continue across Missouri, policymakers should carefully weigh both the benefits and drawbacks these projects bring. Local governments should not rush to give away the primary benefit data centers can provide: tax revenue. Ferguson made the right decision.
