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Environmental activists and other advocates are pushing back against legislation that provides tax cuts for data centers.

Photo: Brett Sayles via Pexels

The Senate recently voted on legislation that extends the sunset on exempting data center equipment from sales and use tax. SB 237 Track passed last week with bipartisan support. The companion bill, SB 238 Track, is expected to come up for a vote this week. The House passed similar legislation last November (See GongwerMichigan Report, November 8, 2023).

"Water is a major concern here, and also, the energy use associated with these data centers actually could put Michigan's climate goals at risk," Michigan Director for Clean Water Action Sean McBrearty said during a press conference Monday morning.

It was unclear on Monday if the House plans to take up SB 237 Track soon. When the House passed similar legislation last fall (HB 4905 Track, HB 4906 Track), some members were beginning to question if the tax incentives were worth the investment.

Rep. Greg VanWoerkom (R-Norton Shores) said at that time Michigan's climate goals and newly passed energy legislation made the tax breaks a waste of energy.

The state currently has two big data centers, one near Grand Rapids and one in Benton Harbor.

If more data centers set up shop in Michigan, they will become some of the largest water and energy users in the state, McBrearty said. That's because water is the least expensive way to cool the machines. On average, data centers use between 1 million and 2.5 million gallons of water every day.

"The state Senate last week said that the water has to come from a municipal water source, or within five years has to come from a municipal water source if that's not available immediately," McBrearty said. "The problem exists that water withdrawals this large are often harmful water withdrawal and the Michigan water withdrawal assessment tool has not been effective in catching problems."

Giving away tax exemptions while allowing profitable corporations to take Michigan's water is not the answer, he said.

Last week, leaders of the Senate legislation disputed criticisms of the bill, saying 30 states have similar breaks and the legislation has new environmental protections.

Bill sponsor Sen. Kevin Hertel (D-Saint Clair Shores) told reporters he believes the bill as passed would make Michigan an attractive place for companies to locate data centers while not having negative environmental impacts.

"If you look at the language that we put in this legislation, it is the most environmentally friendly language of any state in the country that has done this so far," Hertel said.

Denise Keele of the Michigan Climate Action Network called the data center tax exemptions "business as usual."

"The same business as usual type of policies that got us into the climate crisis in the first place and are responsible for the one degree of global warming that we are already experiencing," she said.

Keele said that if Michigan wants to provide tax cuts to corporations, then it should demand commitments to renewable energy from them.

"We are urging our Michigan Legislature to not undermine our climate goals on public health, and instead to use this opportunity to at least leverage data center development to elevate and implement Michigan's clean energy goals by aligning those policies," she said. "If we're to continue to give tax breaks, we ought to link not just job creation and other kinds of qualifications, but we should require renewable energy sources as they're formed."

Kasia Tarczynska of Good Jobs First said that data centers are not worth the tax exemptions.

"Data centers create a very small number of jobs in comparison to other projects that receive economic development incentives," she said.

The average cost per subsidized job at a data center is about $2 million, according to a report from Good Jobs First.

"At this rate, it is impossible for the public to recoup the invested revenue," Tarczynska said.

Additionally, data centers don't need tax incentives to build, Tarczynska said.

"The data center industry has been experiencing unprecedented growth, so tech companies must build data centers," she said. "These facilities will be built no matter what, with or without subsidies."

The legislation is also problematic from an environmental justice standpoint, Pontiac City Councilperson Mikal Goodman said.

"We have so many people in Black and brown communities like Detroit, who are given criminal charges or worse for turning back on their water to make sure that they have a very needed resource for living," he said. "Meanwhile, we have data centers and large corporations, like Google, like Amazon, just having free rein and access to whatever resources that they need."

Providing tax breaks for large corporations also takes away money that could be used for improving local water and road infrastructure, Goodman said.

"A lot of this has no real benefit for local communities and local residents beyond, possibly, a shiny new building," he said. "If that is where we are basing our politics, we are in a deeply, deeply wrong place."

Molly Sweeney with the Michigan Education Justice Coalition argued that Michigan needs a better economic development plan than tax breaks to grow its population.

The speakers agreed that any legislation that provides tax incentives for data centers should not just prioritize but require renewable energy. They also said centers should be prohibited from using evaporative cooling systems. Transparency from the state about what companies are receiving tax breaks was also encouraged.

"What the Legislature can do here is to slow down and make sure we get the policy right," McBrearty said.

The best-case scenario would be for the tax incentives to be repealed, multiple speakers said.

"I would like to see the tax incentives gone," Goodman said. "The purpose of tax incentives is supposed to be to incentivize things that are not profitable, or not as profitable, at least from a community development standpoint. … Meanwhile, the people who are the corporations who are doing these data centers are some of the most wealthy corporations and businesses that we have ever seen."

Sweeney said Michigan should aim to be a leader for emerging tech industries.

"Show the world what can be different. We don't need to incentivize big corporations," she said. "We can focus on our people, and that creates growth. That creates the communities that we all are trying to get."

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This article first appeared at Gongwer.