A group of Ohio House members, largely representing the state's urban areas, introduced a bill earlier this month to prohibit property tax exemptions for data centers. This proposed legislation targets a significant tool that can have a substantial impact on local government budgets across Ohio.
Property tax exemptions are generally designed to provide an incentive for companies to develop projects at specific sites. While older literature on economic development incentives suggests that only about 2% to 25% of projects make decisions based on incentives, newer studies focusing specifically on data centers imply this number could be closer to 33% for these facilities.
Despite the indication that a third of data centers might be influenced by such incentives, one consideration is the opportunity cost involved. Exempting data centers from property taxes means less money available for essential local services, including schools, county governments, townships, and municipalities. Even if one-third of data centers are swayed by exemptions, this could still translate to hundreds of millions of dollars in public funds not collected from the two-thirds of data centers that are not making decisions based on incentives.
Further questions center on the actual social impact of attracting data centers. While data center construction typically leads to increased construction spending, wages, and capital investment, some analyses suggest that these benefits might be similar to subsidies for sports stadiums. The economic consensus is that stadium subsidies are often an "economic development shell game" rather than the creation of new economic value. Data centers could potentially follow a similar pattern, displacing other economic development that might occur independently.
Other social impacts requiring investigation revolve around utility costs, environmental concerns, and public health. Data centers are known to be energy-intensive. Their operations could either drive up electricity and water costs and lead to the burning of fossil fuels if they draw energy from the public grid and water from public systems, or result in the construction of new gas-fired power plants if their energy generation is handled behind the meter. This could lead to higher carbon emissions and a degradation of air quality, contributing to associated health issues such as asthma and lung disease from the emission of NOx, PM2.5, and SO2 into the air.
The question of who benefits from these developments is also relevant. Much of the economic benefits derived from data center construction are likely to accrue to investors and data users who reside outside of Ohio. Globally, carbon emission costs contribute to climate change. However, local communities would experience both potential economic development benefits, such as jobs, and public health costs, including asthma and lung disease.
A final consideration is the state's usual approach to economic development incentives. The state of Ohio typically grants local communities broad authority to utilize incentives, acknowledging that different localities face unique challenges in fostering economic growth. A complete ban on property tax exemptions for data centers could potentially hinder some communities from pursuing economic development opportunities that could benefit them. Nevertheless, data centers represent a significant industry, and regulating a rapidly changing industry at the state level might be the most straightforward policy approach, according to some analyses.