'The Commonwealth of Amazon'
A Virginia deal with Amazon Web Services shows the perils of corporate subsidies and consolidation.
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Amazon, though best known for its online retail platform, is far more than that. In fact, its most profitable arm is likely Amazon Web Services, which is a cloud computing platform, meaning it builds and runs the infrastructure that enables other businesses and entities such as government agencies to operate online, including data storage. Estimates show that Amazon Web Services holds about 40 percent of the cloud computing market and will hit $100 billion in revenue this year.
To accomplish that, AWS, as it’s known for short, needs data centers; they’re fundamental to the business. And it has gotten very good at getting a portion of those data centers paid for by the public, either in direct grants or tax breaks for the various materials needed to construct them and keep them up and running.
The epicenter of this effort has been in Virginia, where AWS recently announced a new batch of data centers, which will be accompanied by a $140 million grant from the state and an as-of-today unknowable amount of money via an extension of a sales tax break for the purchase of equipment and software. Despite both of those things still requiring approval by the state legislature, Gov. Glenn Youngkin was out crowing about the AWS deal last week as if it’s already done — which maybe it is, since members of both parties in the statehouse are out there praising the deal too.
I’ve written before about all the reasons subsidizing data centers is bad news: They create few jobs, fewer knock-on economic effects, and are necessary infrastructure for the corporations that build them, so states are almost certainly paying for lousy economic activity that would have happened anyway.
Virginia is a perfect case study for that, but also exemplifies an additional problem: Once a dominant, consolidated industry gets a grip on the economy of a state, it gets a grip on the political process too, causing additional harms as it entrenches itself and makes it so the state can’t ever close the subsidy floodgates. States and localities get so used to subsidizing a certain kind of business in order to win a “competition” against other states that they can’t contemplate ever stopping.
As one Virginia resident put it, “Northern Virginia is being overwhelmed by these things. … We may as well start calling ourselves the Commonwealth of Amazon.”
Thanks to its lucrative data center subsidies, East Coast location, and proximity to major power centers (political and literal), Virginia, and especially Northern Virginia just outside of Washington, D.C., has seen a major data center boom over the last 10 years or so. The area hosts more data centers than the next five largest markets, combined.
In theory, the goal of subsidizing an industry is that government builds the foundation under it and then can eventually remove the supports and let the industry stand on its own, providing a sustainable economic boost that doesn’t require constant public funds.
At that, Virginia has failed miserably. Though it’s the largest data center market in the country and, according to John Mozena of the Center for Economic Accountability “is already home to more than half of the major-market data center capacity under construction in the United States,” the state is setting itself up to dole out more and bigger data center subsidies for decades, if not longer. Instead of nurturing a nascent industry and then letting it succeed on its own, Virginia is paying more and more and more for the privilege of keeping what it has.
In their first year, Virginia’s data center subsidies cost $3 million; the total was $138 million last year. Overall, between 2010 and 2020, the state doled out $830 million in funds for data centers, and the deal on the table with AWS shows there’s no inclination to shut off the spigot soon, as it reportedly includes provisions that could extend subsidies first out to 2040, and then again to 2050, if certain conditions are met. (Yes, that’s nearly 30 years from now.) So the arc is toward directing billions of dollars to firms like Amazon, Facebook, and Microsoft that hoover up the lion’s share of these programs.
Hilariously, sadly, and corruptly, the condition to trigger that sales tax break extension is a corporation investing $35 billion in the state — which is the amount Amazon has already pledged to spend. In 2019, an audit found that the state was only garnering 72 cents on the dollar spent on its data center program, so Virginia is heading toward a lot of money losing for a long time.
Amazon, meanwhile, despite its ample existing presence in the state and all the good business reasons for continuing to build where it has existing infrastructure rather than starting from scratch somewhere else, is receiving legislation perfectly tailored to ensure it can access the public dole for decades to come. An entrenched industry results in more subsidy spending, not less.
But that’s not all. The locations of future data centers is either unknown or undisclosed at the moment, so Virginia localities are inevitably going to get into a bidding war that features even more goodies for Amazon than those it’s already slated to receive from the state.
For example, Virginia Beach recently cut its own taxes in an attempt to get to the front of the line. Amazon is well known for playing localities off against each other, and I bet its site selection consultants are already giddy over the bidding wars they’ll incite. This, when one of the prime justifications for bringing in these data centers is that they boost local revenue.
And, of course, Amazon is receiving hundreds of millions of dollars from Virginia for its HQ2 in the same region, giving the corporation even more power to entrench itself both economically and politically, and making it that much harder for future legislators to cut it off.
I’m harping on data centers because that’s the thing Virginia policymakers focused on, but the same tale could be told about any industry that receives the kind of subsidy and then subsequent political support that Virginia has expended.
But the news isn’t all terrible. There’s a growing opposition movement to the growth of data centers in Virginia, mostly based on environmental concerns, but also focusing on the increasing amount of land they’re taking up and their proximity to things like parks, as well as their water and electricity use.
“In my opinion, the data centers are short-term financial gains with long-term environmental consequences. Industrial buildings with no actual workers are not the economy of the future,” said State Sen. Chap Petersen, who is sponsoring a resolution to have Virginia study the impact of its data center industry, as well as a bill to limit where they can be built.
Communities are also making noise about the negatives data centers bring, including at a city council meeting in Warrenton, Virginia, recently, where 50 people showed up to oppose a new project, with only two in favor. One of the opponents even “sang a data center-inspired version of ‘My Favorite Things’ … She loves Warrenton shops, but the data center makes her sad.”
And since the AWS deal requires legislative approval on two different pieces, there’s an opportunity for opposition organizing.
Again, this is all a “debate” over the state subsidizing the infrastructure for a corporation whose extremely lucrative business model requires that infrastructure. It’s, on just about every level, absurd.
And yet here we are, with Virginia serving as an ongoing example of the perils of corporate subsidies and consolidation, and letting one industry run roughshod over the state’s economic policymaking.
ONE MORE THING: Two states are out of the gate this year with new bills to create an interstate compact against corporate tax giveaways: Hawaii and Illinois. And there are more coming, I’m sure. You can learn what this important effort is all about here and here.
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— Pat Garofalo
Another forgotten long time subsidy, Desantisyland in Florida.
Boondoggle #2 for today= +/- IBM 40 years later after leaking plans to build tech manufacturing in North Florida (where a number of BM employees from S. Florida relocate to speculating cheap farmland) but then IBM reneged.