Facebook and the Data Center Scam

How an Iowa school lost nearly $900K to a Facebook tax break.

Because of a big oops regarding Facebook and its property taxes, a school district in Altoona, Iowa, is set to lose nearly $900,000 from its budget, basically overnight.

But this isn’t just a tale about one school district: It’s about cities all over America deciding that big tech’s data centers require hefty amounts of taxpayer money.

Here’s what happened: As I noted in NBC at the time, Altoona has gone all-in on data centers for Facebook, which is where the company keeps and runs the servers that shuffle your personal information all over the world. The facilities have received significant tax breaks in the form of both state payments and local property tax exemptions. For the data center in question, which was approved in 2017, Facebook had its property taxes waived for 20 years.

And therein lies the problem, because property taxes are the primary way in which districts fund their schools.

In this instance, the tax assessor failed to note that a property tax exemption had occurred, so Facebook’s taxes were included in the city’s budget, and therefore the school district’s budget. But because of the exemption, Facebook won’t actually pay that amount, so the school doesn’t actually have the money either. When everyone realized the mistake, it blew a a $894,285 hole in the school’s finances.

There are two problems here worth discussing. First, as I’ve noted in this newsletter before, property tax breaks are a particularly destructive way for cities to subsidize businesses, because of the effect they have on schools. Teachers in a bunch of major cities are doing good work raising awareness about this issue.

Then there’s also what Altoona decided to subsidize: Data centers. Iowa lawmakers have decided that enticing in server farms is something they deeply desire, so both the state and a bunch of cities have given out eye-popping amounts to our biggest tech titans. The largest deal is a $213 million tax break package for Apple to build a data center in Waukee, Iowa.

These giveaways are bad news for all the usual reasons, but they’re also problematic because of the simple fact that data centers don’t create many jobs. According to a report by Good Jobs First, data center subsidies come in at a cost of about $2 million per job. Some deals, like one in North Carolina, cost as much as $6 million in subsidies for every permanent job created.

That deal with Apple? It’s only for 50 jobs, at a cost of a cool $4.2 million per position.

For the sake of comparison, the terrible deal Wisconsin cut with the manufacturer FoxConn, which arguably cost former Republican Gov. Scott Walker re-election, cost some $290,000 per position at the high end of the estimate.

Altoona’s deal with Facebook is the same story. While it did create a bunch of short-term construction jobs, the company anticipates a maximum of 400 people will be employed permanently by the five-building facility. 20 years of property tax exemptions for 400 jobs is a very bad trade.

More than 20 states offer specific tax breaks to data centers. Many of them also have ridiculously low standards for how many jobs those centers have to create, with some going as low as five.

Earlier this summer, Illinois became the latest state to pile on, at least partly as a response to the growing data center hub in Altoona, even though Chicago is already the nation’s third largest data market.

So this is how it goes: Tech companies such as Facebook play states off against each other, forcing them to continuously up the ante in terms of what they’re willing to give away to new businesses, even if those businesses have a negligible impact in terms of jobs and economic growth. Economic desperation and tech company fascination combine into a toxic city finance stew. And as Altoona showed, it’s sometimes the youngest residents of a place — those who can’t even vote — who suffer the most.

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