JLARC Examines Data Center and Manufacturing Incentives

June 19, 2019

As part of its June 17 meeting, JLARC submitted a report on the impact and effectiveness of certain state economic development incentives. The report focused on 11 incentives designed to promote data center and manufacturing (especially semiconductor production) growth and well as reducing pollution and promoting green jobs. JLARC made seven recommendations to improve the effectiveness of these programs.

Between FY 2010 and FY 2017, Virginia spent $558.52 million on targeting data centers and certain manufacturers. Of that amount, the largest ($417.47 million) was spent on a data center retail sales and use tax exemption. In return for making at least $150 million in capital investments and creating 50 new jobs (25 new jobs in an unemployment distressed/enterprise zone) in a Virginia locality, eligible companies may use the exemption on the purchase or lease of computer equipment and enabling software for the processing, storage, retrieval or communication of data, including servers, mainframes, network infrastructure, and data storage hardware.

JLARC staff estimated that the impact of this exemption to the state’s economy during this period was the creation of 155 jobs, $26.5 million in state GDP, and $14.6 million in personal income per each $1 million of incentive. The return on investment (ROI) to the state for this incentive is estimated to be 72 cents on the dollar.

Virginia currently hosts 159 data centers making use of the exemption and is the largest data center market in the nation. Though most of these centers are located in Northern Virginia, the state is witnessing an expansion to other regions. Recent data centers to call the state home include Facebook in Henrico County and Microsoft in Mecklenburg County. Benefits to localities of these centers include an infusion of well-paying jobs (a minimum of 1.5 times the annual average local wage), and the ability to collect property taxes on the often-massive facilities.

JLARC also spent significant time examining Semiconductor Custom Grants. Semiconductors are electronic chips or circuits made of silicon and are essential to all computerization. Virginia has historically used custom grants to provide economic incentives ranging between $30 million to $500 million to land companies such as Micron Technology in Manassas and QTS in Henrico County.

JLARC staff estimated that the impact of these grants to the state’s economy during this period was the creation of 67 jobs, $21.9 million in state GDP, and $13.3 million in personal income per each $1 million of incentive. The ROI to the state for this incentive is estimated to be 72 cents on the dollar.

JLARC also reviewed several incentives designed to reduce pollution and promote green job creation, but found their impacts to be negligible and recommended that two of them be eliminated. Staff recommended the following actions be taken by the General Assembly:

  • Further reduce or remove the minimum job creation requirement in distressed areas or enterprise zones for the data center exemption.
  • Require all data centers to report employment levels, capital investment, and tax benefit information to VEDP.
  • Require a work group to examine Virginia’s infrastructure and other policies affecting data centers to identify (1) actions needed to maintain Virginia’s competitive position and (2) whether opportunities exist to reduce reliance on the sizable exemption without adversely affecting industry growth.
  • Eliminate the Green Job Creation Tax Credit and Biodiesel and Green Diesel Fuel Producers Tax Credit.

The full report and recommendations from JLARC can be accessed here. VACo supports economic development policies and programs that bolster local and regional development efforts by maintaining state funding and granting additional funding and authority to promote local and regional initiatives, including the provision of adequate funding for the operations of the Virginia Economic Development Partnership (VEDP), which administers the incentives in coordination with the Department of Taxation.

VACo Contact: Jeremy R. Bennett

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