Data center industry reaches critical crossroads in Virginia (copy)
HERNDON — The man who helped make Loudoun County the data center capital of the world wants Virginia lawmakers to find a way to keep the state's word with a powerful industry that he said has come under public scrutiny like never before.
Buddy Rizer, Loudoun's executive director of economic development for almost 20 years, said the data center industry has done its part by investing more than $200 billion in Virginia, based largely on a state tax break that's now on the chopping block in a political stalemate that has stalled adoption of a new two-year budget.Â
The Virginia Senate, led by Finance Chair Louise Lucas, D-Portsmouth, proposes to repeal a 16-year-old sales tax exemption to reclaim $1.9 billion in state and local government revenues over the next two years to help the state offset the pending loss of hundreds of billions of dollars in federal funding for social safety net programs.
But Rizer, in a presentation here this week, said that "money is only part of the story."
"The other part of the story is Virginia as a place to do business," he told the Northern Virginia Technology Council on Tuesday. "We gave our word that through 2035, the tax incentive would be in place."
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Now, Rizer said that data center operators and their shareholders are rethinking their investments in Virginia, pending the outcome of the political standoff as the end of the fiscal year looms on June 30, with no budget yet in place for the next day.
"To me, that's not a good way of doing business; I hate to see it," he told the council. "We'll see what happens, but I think that could be a real problem for us."
Former U.S. Rep. Barbara Comstock, R-10th, echoed Rizer's concern after the meeting.
"We've got to keep our word," said Comstock, who carried legislation in the House of Delegates in 2012 that expanded the use of the exemption to data center tenants. "It goes beyond the data centers."
The House of Delegates and Gov. Abigail Spanberger are holding the line against repealing the tax exemption, primarily because of the potential effect on Virginia's business reputation, but House and Senate budget negotiators have made little visible progress toward reaching a compromise. The six delegates and five senators charged with reconciling their differences haven't met as a group for two months.
Sen. Creigh Deeds, D-Charlottesville, said he and other Senate negotiators are talking among themselves about potential solutions, but Lucas remains unmoved.
"We've talked about a lot of compromises," he said on Wednesday. "The bottom line is that the chair's position I don't think has changed a bit."
Deeds said Rizer's perspective is not surprising. Rizer said Loudoun expects to receive $1.2 billion in tax revenue from data centers this year, with 53 million square feet under roof and another 44 million square feet under development. The county has used the money to build 32 schools, including a $144 million high school; lower the real estate tax rate by 48 cents per $100 in 13 years; reduce the local car tax; and expand parks and recreation.
The money has even allowed Loudoun to buy Oak Hill, the 1,200-acre estate of former President James Monroe near Leesburg, for a proposed new state park, a plan that also depends on the outcome of the stalled budget negotiations.
"What do you expect someone from Loudoun County to say?" Deeds asked.
"If the localities want them, localities are going to have to incentivize them," he said.
One of his Democratic colleagues from Loudoun, Sen. Russet Perry, said data center money isn't everything.
"I'm concerned that at some point, Loudoun is going to have become so wealthy because of all the data center money that no one is going to want to live there," said Perry, who called Loudoun and neighboring Prince William County "overly saturated" with data centers.
Loudoun Supervisor Laura TeKrony, who has watched data centers creep from eastern Loudoun across her district, said the tax exemption "should be phased out."
"I don't think that's something the industry should expect long term," TeKrony said.
Yet, only three years ago, the General Assembly adopted legislation to carry out a deal that Gov. Glenn Youngkin made with Amazon Web Services to extend the sales tax exemption by five years if the company invests at least $35 billion in new data centers and creates at least 1,000 full-time, high-wage jobs. The new law extends the exemption even longer, until 2050, for companies that invest at least $100 million and create at least 2,500 jobs.Â
The data center industry has made two private offers to Lucas to break the stalemate, offering up to $1.1 billion in unspecified new revenues over the next two years, but with a condition that the state extend the sales tax exemption by five years. Lucas rejected both offers and said that an extension is "off the table."
"I think there can be compromise," Rizer said after the technology council meeting. "I think the industry is willing to compromise."
One potential compromise could tie use of the tax exemption to data centers accepting additional environmental restrictions — on backup generators and power sources, for example — investing more in clean energy and improving their energy efficiency. The proposed House budget includes language to do that, without extending the life of the tax exemption, based on House Bill 897, which Del. Rip Sullivan, D-Fairfax, got through the House before the Senate Finance & Appropriations Committee killed it.
"I see this as the basis of a potential compromise," Sullivan said on Thursday.
Deeds introduced similar legislation, Senate Bill 365, which the finance committee also killed, and commended Sullivan's approach in early March.
"We've taken a different tack with respect to this tax exemption in the Senate budget," he said on March 3, before making the motion to pass by the legislation. "As negotiations go forward, if the tax exemption is to be continued in any form, it's going to have to be along the terms laid out in Delegate Sullivan's bill."
The showdown occurs as the public appears to be turning against data centers for a variety of reasons — their size, noise, water use and, above all, their demand for electricity to cool banks of computer servers that play an increasingly vital role in the digital economy, national security, healthcare and entertainment. The Washington Post recently published a new Gallup Survey that showed seven of 10 Americans were opposed to data centers in their communities.
"There's major pushback from residents," said TeKrony, who represents a swath of Loudoun from the suburbs near Washington Dulles International Airport to the hunt country around Middleburg. "Residents don't want any more data centers."
Power has become the defining issue, with the public pushing back against the construction of electric transmission lines and substations to serve data centers, as well as the economic and environmental costs of generating enough electricity to meet demand that already far exceeds supply. The challenge became clear in Loudoun in 2022, when Dominion Energy imposed a temporary moratorium on new data center connections because the transmission system there wasn't sufficient to serve them.
"Dominion is saying we need 30 more substations," TeKrony said. "Where are they going to go?"
Rizer said numerous studies have found that data centers do not increase electric bills for homeowners, but Northern Virginia Electric Cooperative, serving a territory that includes the heart of the data center industry in eastern Loudoun and western Prince William County, raised its rates three times in just over a year to pass on the higher costs of buying power capacity from PJM Interconnection, the Pennsylvania-based operator of the power grid in Virginia and 12 other states and the District of Columbia.
He applauded efforts by Dominion — which hosted Tuesday's technology council meeting — and the State Corporation Commission for taking steps to protect utility ratepayers from paying higher electric bills to cover costs for serving data centers.
"This is going to guarantee that the ones creating the demand are going to pay for that demand," he said.
Rizer said he understands the public reaction to data centers.
"In Loudoun, it is, 'enough already,'" he said, adding that "we're about done" because the county is running out of land for suitable sites.
But he said data centers play a vital role and benefit communities that welcome them.
"Data centers don't belong everywhere," he said, "but you've got to make fact-based decisions, not fear-based decisions or political decisions."
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Read the stories from the Richmond Times-Dispatch's three-day series on data centers and the key issues they pose.
Michael Martz (804) 649-6964
