Three Thoughts: Data Center Backlash

 

Nationally, data center bashing is a bipartisan issue.  The backlash is not going away either.

The first time I heard about a data center, it could fit in the space of a couple tractor trailer parking spaces.  They looked the part too—windowless boxes with a door for the occasional tender to visit and a vent for the excess heat.  There were some parked just outside the Brewery District twenty years ago.

Today, even though semiconductors allow more storage to fit in less spaces, data centers have evolved to become land-, water-, and electric-consuming massive concrete buildings.  Ohio, aided by strong electric infrastructure thanks to our long legacy of manufacturing and a lack of hurricanes, has been an attractive place to locate.  Today, there are reportedly 40 of them in New Albany alone. 

Far be it for me to pile on the backlash, but here I go.

ONE THOUGHT: Is the Juice Worth the Squeeze?

The biggest reason for the national backlash is a basic fact: The economic impact of data centers is truly weak.  

All the think tank studies claiming supply chain and spillover impact I’ve looked at never survive a couple questions deep.  Benefits to a few.  Pain to many others.  Not much juice for all the squeeze.

There’s no reason to incentivize them to come.  New Albany has one part of the data center equation right.  They impose a payment in lieu of payroll tax that brings in the equivalent from the machines that it would if there were people in those buildings paying wage taxes instead. 

 

SECOND THOUGHT: Electricity Demand Disrupted

The Ohio Manufacturers Association is right to point out that data centers, though certainly bringing a larger demand than manufacturers do, are not the ones to blame for the rising power rates.

OMA points the fingers at utilities.  The electric rate bidding system favors reporting higher electricity demand than can be proven.  The systems to hold monopoly utilities accountable are seemingly broken.

To be fair, there are risks.  Technology improvements could cut the electricity needs of AI and future data needs.  Thus, electric infrastructure investments based on data centers alone as a customer is a risky move to make.

The worst thing that could happen?  Put the risk of electric growth on stranded customers.  Ohio’s move to deregulate electricity 20 years ago was the right move.  Reversing that would be a huge mistake.  Mom and pop electricity rate payers shouldn’t bear the brunt of risky business decisions.

 

THIRD THOUGHT: Opportunity Cost is The Biggest Issue

To me, the biggest issue is one that isn’t at the center of the backlash but ought to be.  It’s opportunity cost.  It’s asking the question: What alternative opportunity could happen with a data center site, in the long run, that has more economic impact?

Without naming names, here’s one example that proves my point:  One large data center company sits on 350 acres with 70 jobs paying an average of $75,000 a year.  Just 15 miles away that same 350 acres hosts an industrial park with 20 diverse manufacturers employing 2,070 people.  The average pay is the same.

The difference is 2,000 families with jobs and a community with a more stable, growing tax base.  That’s the definition of opportunity cost.

It’s smart for communities to make informed decisions with future opportunity in mind.

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This column is a regular column in The Dispatch.