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Data centers: big tax breaks, little disclosure

Computer data centers built in Hillsboro’s enterprise zone are enjoying generous tax breaks with almost no public accountability.

Companies with data centers already open or on the way include T5 Data Centers; Umpqua Holding Companies; Via West Inc.; Fortune Data Centers; Digital Realty Trust Inc., which houses NetApp in its building; and Adobe Systems Inc.

Oregon’s 63 enterprise zones are designed to attract investments by exempting businesses from 100 percent of local property taxes on new investments for up to two years while construction is in process, and up to five years after that if they are growing employment in the zone. Because IT equipment in a data center must usually be refreshed within five years, the net effect is that there is no tax — neither sales nor property — on such equipment in enterprise zones. Fortune magazine said these “...are enormous financial incentives.”

Are the tax breaks Hillsboro’s giving out to data centers paying off for the city? Since the program is ballyhooed as a job creator, you’d expect stringent and substantial hiring requirements to be tied to the valuable property tax exemptions. You’d also expect the city, as well as the data center companies getting the tax breaks, would gleefully share their job creation achievements with the public to demonstrate their impact.

Forget about it.

Enterprise zone contracts require that if a data center already operates inside the zone and applies for benefits or renewal, it is required to increase employment by just 10 percent. If a firm locates a new data center in the zone, it needs to add only one employee to be in compliance. That’s right, just one.

As for job creation, city officials said they don’t have employment numbers on the data centers in the enterprise zone. Mark Clemons, Hillsboro’s economic development director, has, however, said publicly that the companies have added a total of 1,420 jobs since joining the program. How he arrived at that number without knowing the number of employees at each company, including the data centers, is a puzzlement.

NetApp reported it has 12 full-time employees, plus one contractor, and expects to hire one or two more people over the next couple years. It’s likely the other data centers have similarly small work forces.

As a general rule, if incentives cost more than the resulting jobs contribute to the economy, they are misplaced. Given the significant tax abatements enjoyed by the data centers in Hillsboro’s enterprise zone, the wisdom of those abatements is questionable.

Still, the public can be assured that the employees earn good wages, right? When I asked all the data centers for the average wage of their employees, not a single one provided a figure.

Thankfully, Hillsboro taxpayers can easily find out the value of the tax abatement each of the multi-million dollar data centers is getting from the city. That way, the public can judge whether the foregone taxes are worth it in terms of investments made and jobs created.

Nope.

I asked the Washington County tax assessor’s office how much the enterprise zone property tax exemptions save each data center annually.

“It has been determined that this information is confidential and exempt from disclosure,” replied Julie McCloud with the Washington County Administrative Office.

Quite simply, there is little transparency to the entire data center process. Without a requirement that data centers make their employment numbers, average wages, investment numbers and the value of the tax abatements public, it is impossible to judge how much each new job is costing the city and whether the job gains are worth the tax losses.

Without that information, the public can’t know whether the data center enterprise zone deals being cut by the city make sense.

It’s time to change that.

Bill MacKenzie is a former congressional staff member, reporter and communications manager for a Hillsboro company.




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