'Believed to be Facebook'

A Tennessee city is making a deal with a mystery tech company.

The city council of Gallatin, Tennessee, on Tuesday voted to deliver millions of dollars in tax breaks to Facebook, which is planning to open a new data center there.

At least, everyone thinks the tax breaks will be going to Facebook. But no one in the decisionmaking chain — and certainly not the public — seems to know for sure.

Here’s what we do know: The council, as part of a larger economic development agreement, approved what’s known as a PILOT, for payment in lieu of taxes. That’s an arrangement in which a corporation doesn’t pay the full property tax rate on the land it owns, but agrees to merely pay a set fraction for a certain amount of time. This particular PILOT is good for 20 years, and will save the recipient about $19.5 million in taxes it would have otherwise owed.

That recipient is something called Project Woolhawk. According to local journalists, Project Woolhawk is “believed to be Facebook,” negotiating from behind a shell company. But the head of the local development office claims to have had no idea he was working with the social media giant when ironing out the details of the arrangement. Other city officials were also reportedly not told with which company they were dealing.

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There are two points worth making here. First, as readers of this newsletter hopefully known full well, giving tax breaks to data centers is a scam. They don’t create many permanent jobs and they’re necessary infrastructure for the companies in question, so the case needing to incentivize their creation is weak. In some instances, cities pay literally millions of dollars for each individual data center job.

Second, we need to dwell on why Facebook engaged in all this cloak-and-dagger stuff. Why not let everyone know that it was the company seeking a deal?

The answer is likely that Facebook executives felt there would be more of an uphill climb to obtain any giveaways they wanted if they were open about their identity.

Google pulls this same trick all over the country in order to win subsidies and other governmental favors, betting that a shell company no one has ever heard of has a better chance of obtaining goodies and of avoiding media and public scrutiny than does a behemoth tech company and all of its baggage. Keeping the actual recipient vague also ensures that any organized opposition is left scrambling at the last minute, if it can get organized at all.

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One of the main takeaways in my book is that transparency is often the difference between bad corporate giveaways being approved or defeated. If the public knew that a privacy-invading, fake-news-purveying mega corporation like Facebook was taking their money, they may be more inclined to voice an objection than if local officials are merely wooing a nondescript, random tech company named Woolhawk to set up some servers.

It’s not just money on the line here: Data centers use massive amounts of other resources, such as power and water. Local officials often negotiate sweetheart deals for those too, giving companies big rate cuts in exchange for setting in a particular place. Gallatin is negotiating a water access contract with “Woolhawk,” so that’s another area in which taxpayers could lose out.

The agreement between “Woolhawk” and Gallatin also gives former the ability to review any public records requests related to the project. That’s a typical tool in economic development agreements such as this to even further bury any details that may turn the public against them.

Look, this isn’t the most egregious tax giveaway around. It’s far from the most offensive one given to Facebook, which has collected about $375 million in state and local subsidies, including deals with Texas and Utah that are worth about $150 million each.

But it’s a good illustration of the various ways in which big companies wield power. Sometimes they cow lawmakers into doing what they want; but sometimes they use a bit of subterfuge to prevent pushback on what could be unpopular policies.

Either way, the public gets left behind.

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— Pat Garofalo