Legislature extends tax breaks for data center that brought only 2.6% of promised jobs

When Michigan approved subsidies for a data center in Grand Rapids in 2015, the data storage company Switch promised it would create 1,000 jobs.

A 2022 state report said Switch had created 26 jobs or 2.6% of its promised goal.

Despite that broken promise, last week, the Legislature approved House Bill 4906 to extend to exempt large data centers from sales and use taxes until 2050. Some exemptions will last until 2066.

The bill would reduce state and local revenue between $52.5 million through fiscal year 2065-66, according to the Senate Fiscal Agency. The loss to the general fund could exceed $90 million.

In 2015, the Detroit Free Press quoted Birgit Klohs, the then-president and CEO of The Right Place, Inc., a group that advocates for subsidies, saying: “I cannot overstate the impact Switch will have on both the greater Grand Rapids area as well as the entire state of Michigan.”

Switch did not respond to a request for comment.

John Mozena, president of the Center for Economic Accountability, said that data centers are some of the “dumbest things a state can subsidize.”

Data centers require great amounts of water and electricity but provide few jobs, Mozena told Michigan Capitol Confidential. They also are unlikely to lead to new jobs in their vicinity because modern cloud computing makes the actual location of a server far less important.

“That’s why the promises of follow-on high-tech development around data centers almost never deliver,” Mozena said. “Developers say that companies will come to town to be near the data center, but only a tiny fraction of very specific industries, such as high-speed Wall Street trading firms, need to be physically close to the data centers they’re using. Otherwise, data centers and IT companies are often looking for very different things in the site selection process. Data centers care about cheap land, power and water, in places with a low risk of natural disasters. IT firms, however, are almost entirely focused on the availability of a skilled local IT workforce.”

State Rep. Joey Andrews, D-St. Joseph, welcomed the bill’s passage.

“The passage of this bill will help bolster economic growth and development here in Michigan,” the bill sponsor said in a news release. “As technology continues to advance, it is imperative that legislation allows the state to remain competitive economically. Southwest Michigan’s abundant fresh water resources and reliable nuclear energy infrastructure make it an ideal destination for data centers, particularly with the growing demand for such facilities. This positions our region as increasingly attractive for investment, fostering economic growth and job creation.”

The Senate Fiscal Agency said large data centers can consume anywhere from 1 million to 5 million gallons of water per day.