Data Centers Drive Virginia’s Booming Technology Economy

Virginia remains committed to providing timely and cost-effective solutions that support this critical technology sector. Virginia remains committed to providing timely and cost-effective solutions that support this critical technology sector.

 

In November 2015, Microsoft Corp. announced plans for its fourth expansion since 2010 at its Mecklenburg County data center in Southern Virginia. This most recent expansion, an additional $402.4 million in capital investment and 42 new jobs, brings Microsoft’s total planned investment in this facility to $1.7 billion.

 

 

Microsoft is not alone. Amazon, VISA, CoreSite, Bank of America, Google, GEICO, Equinix, DuPont Fabros, Terremark and many others have chosen Virginia as the site for their data center facilities, making Virginia one of the hottest data center markets in the country. According to a recent study by the real estate investment management company Jones Lang LaSalle, Northern Virginia has surpassed the Tri-State New Jersey/New York region as the largest data center market in the U.S., with nearly 20 percent of market share in enterprise demand in 2015.—Northern Virginia Number One Data Center Market in US

 

The financial benefit of the data center boom across Virginia is significant, and is highlighted in a recently published report by the Northern Virginia Technology Council (NVTC).—The Economic and Fiscal Contribution that Data Centers Make to Virginia

 

Here are some highlights from the NVTC report:

  1. Data centers are a critical part of the infrastructure that supports the modern economy, not only in the technology sector, but in advanced manufacturing, entertainment, finance, healthcare, information, retail, telecommunications and almost every other sector of the economy as well.

  2. Although Virginias data center industry is largely concentrated in Northern Virginia, it has broad geographic economic development potential:
    • While 71 percent of statewide employment in this industry is located in Northern Virginia, 11 percent is in Central Virginia, 11 percent in Hampton Roads, 4 percent in Southern Virginia, 2 percent in Southwestern Virginia, and 1 percent in the Valley.
    • Southern Virginia, an area of the state that has been devastated by employment losses in manufacturing and the tobacco industry, is home to Microsofts $1.3 billion data center in Mecklenburg County, the East Coast hub for Microsofts online services, and soon to be expanded to a $1.7 billion facility.
    • DP Facilities announced last fall that it would be opening a 65,000-square-foot data center in Wise County in Southwestern Virginia, an area of the state that has been hard-hit by employment losses in the coal mining industry.

  3. Data centers are a high-performing industry:
    • The data center industry insulated some Virginia localities from the ”double dipthe state experienced as a result, first of the “Great Recession” of 2007-09, and then the federal sequester in 2013.
    • In the last year, statewide employment in the data center industry grew 6.7 times faster than the norm across all industries.
    • In the last year, statewide wages in this sector, already 140 percent higher than the statewide average, grew 9.3 times faster than the norm across all industries.
    • The pool of highly skilled workers the data center industry employs also feeds the talent pipeline for other fast-growing, high-wage industries such as architectural, engineering, and related services; computer systems design and related services; management, scientific, and technical consulting; scientific research and development services; and telecommunications.

  4. Data centers generate significant tax revenue:
    • The data center industry is capital-intensive, and that translates to a disproportionate amount of property tax revenue, by far the largest source of revenue for Virginia localities.
    • In 2014, the benefit/cost ratio for the data center industry was 9.5 in Loudoun County and 4.3 in Prince William County. This means that for every $1.00 in county expenditures that the data processing, hosting and related services sector generated in 2014, it provided approximately $9.50 in tax revenue to Loudoun County, and approximately $4.30 in tax revenue to Prince William County.
    • Because data centers pay high wages — $105,942 per year on average in 2014 — they also have a disproportionate impact on state income tax revenue, by far the largest source of revenue for Virginia state government.
    • This disproportionate fiscal impact places downward pressure on Virginia tax rates, thereby improving the states overall business climate, which has suffered in recent years, causing Virginia to fall from its traditional top slot on most national business climate indexes.

  5. Data centers have a big overall economic impact:
    • In 2014, the total statewide economic impact attributable to the data center industry was approximately 36,043 jobs, $2.7 billion in wages, $8.6 billion in economic output, and $298.9 million in state and local tax revenue.
    • At a regional level, in 2014 the data center industry was responsible for generating approximately:
      • 21,995 jobs, $2.0 billion in wages, and $5.7 billion in economic output in Northern Virginia;
      • 3,974 jobs, $225.2 million in wages, and $885.9 million in economic output in Central Virginia;
      • 3,333 jobs, $185.9 million in wages, and $731.7 million in economic output in Hampton Roads; and
      • 1,002 jobs, $40.8 million in wages, and $196.0 million in economic output in Southern Virginia.

  6. Data center industry investment decisions are increasingly sensitive to statestax regimes:
    • In 2009, in response to the loss of a $1 billion Apple data center to North Carolina, Virginia enacted a sales and use tax exemption for data center purchases of computer equipment.
    • Virginias sales and use tax exemption for data center purchases of capital equipment is much like the exemption Virginia has extended to the similarly capital-intensive manufacturing sector for many years.
    • The current sales and use tax exemption for data centers is scheduled to sunset in 2020.
    • When Virginia enacted its data center sales and use tax exemption in 2009, only seven other states offered such incentives. Today, over half of all states offer incentives for data centers.
    • Seven of those 27 data center incentives were enacted in 2015 alone, and most states now offer incentives more competitive than Virginias.
    • Since 2012 when Virginia last revised its data center sales and use tax exemption, a third of the states offering such incentives have reduced their eligibility criteria to be more attractive to smaller data centers.
    • If Virginia is to avoid the fate of Washington state, home of Microsoft, which has seen billions of dollars of data center investment migrate to neighboring Oregon because of the uncertainty generated by its “off again, on again, off againapproach to data center incentives, it will need to maintain its competitive position in the data center market.

 

The data center industry recognizes Virginia for its many site benefits. Virginia recognizes the significant contribution data centers make to its economic vitality. With the advance of cloud computing and online services, the demand for data centers is growing daily, and Virginia remains committed to providing timely and cost-effective solutions that support this critical technology sector.