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State lawmakers approve a tax exemption extension for data centers, costing millions despite failing to deliver promised economic benefits.
Data Center Job Promises Fall Flat as Tax Breaks Extended
Michigan Capitol Confidential reports that in a controversial move, Michigan legislators have extended significant tax breaks for large data centers, including a Grand Rapids-based facility by Switch, despite its failure to deliver on job creation promises.
Initially approved in 2015 with the pledge of creating 1,000 jobs, the data center had only achieved 26 jobs—a mere 2.6% of its goal—by 2022, according to a state report. Yet, last week, lawmakers passed House Bill 4906, which extends sales and use tax exemptions for large data centers through 2050, with some breaks lasting until 2066.
The bill is expected to cost the state up to $90 million in general fund revenue and local governments an additional $52.5 million through the fiscal year 2065-66, according to the Senate Fiscal Agency.
Critics Slam Costly Subsidies for Minimal Gains
The decision to extend tax exemptions for Switch has drawn sharp criticism, with some experts questioning the wisdom of subsidizing data centers, which require vast resources but generate few jobs.
John Mozena, president of the Center for Economic Accountability, was blunt in his assessment: “Data centers are some of the dumbest things a state can subsidize.” He highlighted their significant water and electricity consumption and the unlikelihood of spurring additional economic development in surrounding areas.
“Modern cloud computing makes the actual location of a server far less important,” Mozena said. He argued that data centers seek cheap land, power, and water, while tech firms prioritize access to skilled labor—factors that rarely align in the same location.
Supporters Defend the Economic Potential of Data Centers
Supporters of the bill, including State Rep. Joey Andrews (D-St. Joseph), argue that the tax breaks will keep Michigan competitive in the growing tech economy. Andrews pointed to Michigan’s abundant freshwater resources and robust energy infrastructure as key advantages for attracting investment in data centers.
“The passage of this bill will help bolster economic growth and development here in Michigan,” Andrews said in a statement. “As technology advances, it is imperative that legislation allows the state to remain competitive economically.”
Proponents also emphasized the potential for increased demand for data centers, as global reliance on cloud computing continues to expand.
Resource-Heavy Operations Raise Environmental Concerns
While data centers may be touted as engines of economic growth, they come with substantial environmental costs. According to the Senate Fiscal Agency, large data centers consume between 1 million and 5 million gallons of water per day. This high resource demand has raised questions about sustainability and the long-term impacts on local ecosystems.
Despite these concerns, supporters of the tax incentives believe that Michigan’s unique combination of natural and infrastructural resources positions it well to attract future investments in this sector.
A Mixed Record on Economic Development Incentives
The tax breaks for Switch are part of a broader pattern of state subsidies aimed at fostering economic development, but their effectiveness is increasingly under scrutiny. In 2015, Birgit Klohs, then-CEO of The Right Place, Inc., hailed the project as transformative for Grand Rapids and the state. However, nearly a decade later, the promised economic impact has failed to materialize.
Switch did not respond to requests for comment.
As Michigan legislators continue to weigh the costs and benefits of such incentives, critics like Mozena caution against overestimating the economic ripple effects of data centers. “The promises of follow-on high-tech development around data centers almost never deliver,” he said.
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