Nov. 30—Greg LeRoy knows it's not unusual for companies planning data center developments to include lofty job creation numbers and economic benefit projections in their press releases.
How often those projects actually live up to their billing is part of the research performed by LeRoy's non-profit group, Good Jobs First.
Since 1998, the Washington, D.C.-based policy research center has analyzed large-scale development projects across the country to determine if they truly do offer sufficient return on the tax breaks and other public subsidies they receive.
Good Jobs First released its first report on data center deals in 2016, finding that the 11 projects included in its review secured public subsidy agreements so rich that they came at a cost to taxpayers of nearly $2 million per job.
"That means that taxpayers will never break even," LeRoy said. "There's no way an average worker in data centers is going to pay almost $2 million more in state and local taxes than public services they and their families consume over their lifetimes. It really means there's a transfer of wealth from those states and cities to the shareholders of the cash-rich internet companies."
Data centers continue to spring up across the country amid increasing demand for storage sites in the era of smartphones, AI and other forms of technology. In the race to attract these centers and the jobs that come with them, LeRoy said research shows some states have paid a high cost.
Last year in Virginia, for example, LeRoy said the state's loss of sales tax revenue from data center subsidy agreements increased by 1,000% over a four-year period.
In Illinois, he said, similar deals resulted in a 600% increase in sales tax exemption losses from 2022 to 2023.
"We've noticed in some states that the amount of revenue lost by states has really skyrocketed recently because of the big boom in data center construction right now," LeRoy said.
Last month, the private firm Niagara Falls Redevelopment submitted a Negotiated Planned Development District, also known as a Planned Unit District (PUD), for a proposed $1.5 billion data center campus in the city's South End. NFR has said that its project would be developed under a partnership with the Toronto-based company Urbacon.
The company's proposal calls for the center to be developed in five phases and to include eight, two-story buildings and one, one-story building covering 1,232,715 square feet of space.
At full build-out, NFR says the project would cover about 53 acres of "mostly vacant land" it owns in the area bounded by John B. Daly Boulevard, Falls St., 15th Street, and Buffalo Avenue.
Neither NFR nor Urbacon has identified a potential tenant or tenants for the site once it is completed.
In press announcements about the project, NFR has claimed the data center would create 5,000 construction jobs and 550 permanent positions while producing a total economic spinoff in excess of $810 million.
"The data center at Niagara Digital Campus is real, it is happening, and it will bring jobs and opportunity to the City of Niagara Falls," said NFR spokesperson James Haggerty in a statement issued in response to questions from the newspaper. "NFR has spent considerable time and expense on this project thus far, and we look forward to continuing our work to bring this development to completion."
But just how realistic are the company's job projections and economic impact estimates?
Kasia Tarczynska, a senior research analyst with Good Jobs First, said it's not unusual for "hyper-scale" data center projects like the one proposed by NFR to create hundreds of jobs, perhaps even 500 or more. However, she cautioned, it often takes a long time for those data centers to reach such high-end job projections, if they ever do.
"Most likely those jobs will be created over several years, if not decades — depending on how many years it will take for the company to do the full buildout," she said. "And there is a local hiring question: how many of those jobs will go to Niagara Falls residents and if there are enough residents with skills suitable for those jobs."
He noted that several high-profile data centers developed by the likes of high-tech giants like Google and Microsoft have included job projections in the ranges of 200 to 250, making NFR's permanent job creation number more like an "outlier" that he believes Falls residents should "take with a grain of salt."
NFR has said that the 550 "high-paying, career-building permanent jobs" at its Falls data center would offer annual salaries totaling $29 million. Based on those projections, LeRoy noted that the Falls data center would offer an average salary of $53,000 per job.
"That's an average so the question is what does the distribution look like?" he said. "How many of those are $30,000 security guard jobs versus $80,000 electrical engineering jobs? You are going to have a distribution there but at least that is what your range is."
LeRoy described one of NFR's other numbers — a projection of 1,700 "ancillary" jobs from the data center — as "facially laughable." He pointed to a study done by the U.S. Department of Commerce's Economic Development Administration that suggests, at best, new economic investments produce one to one and a half jobs from every direct job.
"It's just not plausible based on what we know about the ripple effects created by new economic activity," LeRoy said. "At its most, if you get another job and a half or slightly more than a job and a half on top of the first direct job, that's about the most you can get. That's putting an auto plant in a state like Michigan with a lot of auto supplier jobs, for example. This doesn't have that. You don't have the big complex inputs upstream. You've got electricity. You've got services, maintenance and landscaping and security, but saying it's going to create three more jobs on top of the single direct job? Show me. The literature doesn't support that at all."
NFR's spokesperson Haggerty said two other studies — one by the U.S. Chamber of Commerce Technology Engagement Center and the other by the Northern Virginia Technology Council — back up the company's Falls data center projections which are based on "industry standards for facilities of this size and with this power usage (140 MW), at full build-out."
Haggerty refused to answer the newspaper's question about how NFR could predict how many permanent jobs would be at the Falls data center since it was the project's developer, not a tenant that would be offering jobs at the site once construction is completed.
"As we are in active discussions with the city over the Negotiated Planned Unit Development submission, we will not be commenting further on the plan or our negotiations. I'm sure the City of Niagara Falls is being equally respectful," Haggerty said.
LeRoy said the biggest question facing the Falls and Niagara County where NFR's data center plan is concerned should be whether the company intends to seek any incentives. He noted that two of the most common data center subsidies — sales tax exemptions on equipment purchases and credits that reduce taxes paid on utilities — tend to be the most costly for host communities.
NFR officials have previously said they do not intend to seek local, state or federal incentives to build their Falls data center.
LeRoy said he'd be leery of that claim, especially for a project being pitched in New York where approval of subsidies for projects of this nature are "virtually automatic" because the thresholds for qualifying for them are so low.
"We assume that even though the company's saying they are not going to seek a special deal, based on the incentive code that the state has, which has very low thresholds for qualifying data centers for sales tax exemptions, that they are going claim those exemptions," he said. "They are not going to pay sales taxes, I assume, on their equipment and fiber-optics and all the guts of the place because they automatically qualify out based on the state code and that would be the biggest state cost probably."
The Falls, with its proximity to the Niagara Power Project in Lewiston, offers ample access to lower-cost electricity, an ingredient coveted by data center developers.
If NFR does seek support for its project through the New York Power Authority, LeRoy said it's important for the community and the state to make sure any incentive agreement offers sufficient return on the public's investment.
"Cheap electricity is a precious commodity and you all are blessed with a lot of it because of hydropower there and it's not true of very many parts of the United States," he said. "I would guard that precious commodity and get as much bang for the buck economically as I could and data centers strike me as a poor bargain because they are so energy intensive but so capital intensive and therefore not very labor intensive, that's the problem."
