The Problem:

At least 27 states provide some sort of monetary incentive to corporations that set up data centers within their borders.^[1] These incentives have been employed by the largest tech corporations — Apple, Google, Amazon, Microsoft, and Facebook — as well as large banks and grocery chains to expand their data center footprints.[2] These subsidies are very expensive in terms of cost per job. Likewise, they subsidize corporate behavior that would have happened anyway, because data centers are necessary corporate infrastructure. They also advantage large national and multinational corporations over smaller competitors.[3]

The same critique can be made of subsidies for warehouse and distribution networks: They help national or multinational retailers undermine local retail by subsidizing the buildout of those dominant retailers’ necessary infrastructure. For example, Amazon alone has received billions of dollars in state and local subsidies for its warehouse network, even as the opening of a warehouse in a new community causes local retailers to close or lay off or cut hours for workers, and drives down the rate of new business openings.[4] They also disadvantage local logistics businesses that see Amazon’s monopolization efforts as a key threat to their survival.[5]

The Policy:

States and localities should make data centers and warehousing/logistics facilities ineligible for any subsidy program.

Model bill: S8418, New York, 2022

Notes:

[1] “H5 Takes a Look at State-by-State Incentives for Data Centers Nationwide,” https://h5datacenters.com/tax-incentives.html. (As of July 18, 2022, the reference link does not include Connecticut’s newly enacted incentive for data centers to locate in Opportunity Zones, created in March 2021.)

[2] Garofalo, Pat, “Your Tax Dollars Built Big Tech,” Boondoggle, July 28, 2020, https://boondoggle.substack.com/p/your-tax-dollars-built-big-tech and “Ghosts in Kroger’s Kitchen,” Oct. 27, 2020, https://boondoggle.substack.com/p/ghosts-in-krogers-kitchen.

[3] Garofalo, Pat, “Facebook’s Data Center Fluff,” Boondoggle, Sept. 23, 2021, https://boondoggle.substack.com/p/facebooks-data-center-fluff.

[4] Chava, Sudheer, Alexander Oettl, Manpreet Singh, and Linghang Zeng, “Creative Destruction? Impact of E-Commerce on the Retail Sector,” NBER Working Paper Series, Working Paper 30077, May 2022, https://www.nber.org/system/files/working_papers/w30077/w30077.pdf?utm_campaign=PANTHEON_STRIPPED&amp%3Butm_medium=PANTHEON_STRIPPED&amp%3Butm_source=PANTHEON_STRIPPED.

[5] Rajamanickam, Vishnu, “Why Amazon’s supply chain ambitions should have logistics companies worried,” Freight Waves, July 26, 2018, https://www.freightwaves.com/news/why-amazons-supply-chain-ambitions-should-have-logistics-companies-worried-about-their-future.