Mayors challenged by data centers

Strong opinions on data centers are scrambling support for what some tout as economic engines, while some mayors are pushing for concessions from the tech industry.

"We got the company to pay for the infrastructure," said Andy Schor, Mayor of Lansing, Mich.

"We're going to put money into firefighters and housing revenues. There's a contract and we're going to put this language in, 'we are not bonding for you.' You're going to build it yourself. You are cash rich. You've told us that."

The comments came during a lively discussion hosted by the United States Conference of Mayors on Thursday in Washington D.C.

The deal in Lansing involves British firm Deep Green, which wants to build a data center on what's now surface parking lots in downtown Lansing. If completed the center would use 25 megawatts of power.

The proposed project would siphon the heat produced by acres of servers and funnel it into the city's municipal heating system that warms a General Motors (GM) plant, and state office buildings.

Publicly owned power companies have a keen interest in financing the infrastructure needed to power data centers.

Current Internal Revenue Service rules for tax-exempt bonds restrict public power utilities to three-year contracts with non-government customers, and less than 10% of a bond issue, or $15 million, that could go to a private use.

Public power would like to see the three-year contract eliminated.

Cities are eyeballing what the data center owners are willing to kick-in to make a deal happen. In some cases, the owners are already cashing in on state-level tax breaks.

"It's a tax policy in Arizona," said Mark Freeman, Mayor of Mesa, Ariz. "Our legislature is giving a lot of exemptions to the data centers."

"What we want to do is work hard with our legislatures on eliminating that so we can have them pay for the infrastructure that they're using."

The data center industry is not monolithic and according to Greg Bodenhamer, head of data center markets for Siemens U.S.A., there are four main types of operations.

"Hyperscalers, which are the classics, the Apples, Microsofts, Metas, Google's (GOOG), Amazon, those are the big users," said Bodenhamer.

"Colocation, which often tends to be real estate investment companies that are building data centers and operating them for the hyperscalers.

"The second set of colocations are people that build data centers and lease that space, whether it's single or multi-tenant occupants for a variety of different applications."

"The fourth segment are what we call the enterprise accounts. Those are banks, healthcare providers and the government."

Data centers owned by banks can pose problems for cities looking for tax revenue.

"We proceeded to sell a very old brick plant property to a data center that was coming, only to find out it was a bank," said Mayor Michelle Davis-Younger of Manassas, Va.

Virginia laws exempt banks from local business, professional and occupational license taxes. The city is still set to collect an estimated $1.2 million of real estate taxes on the property.

"We cannot realize the billions of dollars that are lost, now knowing that they did not disclose it until after everything has been done," said Davis-Younger. "We're working with our senators and delegates on the model in Virginia to try to change this."

Many communities are experiencing push-back from citizens concerned about building aesthetics, public safety hazards, noise, and the possibility of rising electricity rates.

"We look across America at what's happening, and the data show that when a data center comes to the community, there's not a correlation with increased electricity rates," said Rachel Marsh chief legal officer for the Edison Electric Institute.

"By and large, there are some exceptions, like, for those of you who are here in the mid-Atlantic region."

EEI is an association that represents the country's investor-owned utilities.