The bracing chill of a Minnesota winter doesn’t make for alluring tourism slogans, but there is an industry beyond dogsledding in which it’s a selling point: data centers.
Selling all that cold air to tech companies that need to keep towers of computers from overheating has become the work of people like Tom Lambrecht, manager of economic development services for the utility cooperative Great River Energy.
“It’s hard to get a professional volleyball league to come up here, but we can get a data center,” said Lambrecht.
That’s the hope, anyway, of an increasing number of Minnesota cities from North Mankato to St. Cloud who see a long-term boost to property tax revenues in data centers — the places where all of the information on the Internet gets stored.
This year, after a slow start, it appears more companies have begun checking out the cold, with three newly opened data centers becoming the first applicants for a new Minnesota sales tax rebate for the industry. Seven more projects are in the queue behind them. Great River Energy, meanwhile, has searched among its membership for the best sites in Minnesota to place a new data center.
Driving their interest has been a flurry of development just over the border in Iowa, which this year alone has seen billions of dollars in investment from Google, Facebook and Microsoft. A mayor there of a town with 60,000 people proudly told the local paper that he expects a recently opened Facebook data center to someday rain $8 million in annual tax revenue. That’s on top of jobs and the indirect benefits to the economy of having a Fortune 100 company in the back yard.
“You want one,” said Mike Fischer, community development director for the city of North Mankato. He has a 37-acre site with its own electrical substation, fiber optic connections, gas lines and everything else needed for a medium-sized data center. He’s awaiting a Deloitte study within weeks that will rank his site against others in Minnesota. Elsewhere, St. Cloud has two spots ready to go, Windom in southwest Minnesota, White Bear Township and Duluth all have at least one location.
And Rochester is in talks with a major Fortune 500 company to build a data center in an existing building, according to the president of the Rochester Area Economic Development Corporation.
The industry has blossomed in the past couple of years as millions of Internet users have stored everything from Facebook photos to banking transactions on the cloud. All of those bits of data live on a real computer somewhere, often one stacked and set in row upon row of machines running 24 hours a day and housed in a secure warehouse. The sites need reliable electricity, water, gas and fiber optic connections, along with a spot already cleared for development. Being close to an airport is a plus. But natural disasters aren’t: Hurricane Sandy flooded data centers on the East Coast, making the flyover territory of the Midwest suddenly more appealing.
Home in the Midwest
Massive data centers have already landed — near sources of cheap power like the Columbia River in Washington state, or near fiber optic hubs like Dallas, Chicago and Denver or in Midwest cornfields.
Some of the largest landed in Iowa, which has cheap power, a generous tax incentive and proximity to the nation’s fiber optic network.
Facebook last month opened its third U.S. server farm (there’s a fourth in Sweden) in Altoona, Iowa, a suburb of Des Moines. The 476,000-square-foot data center is the first of two to be built at the site, an investment worth some $1.5 billion, according to the Des Moines Register. That follows announcements from Microsoft and Google this year to spend billions on similar Iowa projects.
While it’s expected that the developments will bring tax revenue and a boost to their hometown’s economic activity, the arrangements aren’t always rosy. Data centers require massive diesel generators for backup in the event of a power loss, and pollution created by the generators can be substantial. And for some small towns, dealing with a major technology company can be a lesson in hardball negotiations.
Even as the industry has exploded in recent years, Minnesota has been slow to draw much interest. An early effort by the Legislature to lure companies here through tax incentives missed because the law was “pretty outrageous,” said Jeff Gilmer, a senior partner with Excipio Consulting, a technology consulting firm.
The rebate didn’t kick in until the data center owner had spent at least $100 million, which was too much, in Gilmer’s opinion. “They got nowhere,” he said.
The law was rewritten last year to allow for data centers of at least 25,000 square feet with costs of at least $50 million, and this year three new data centers have applied for the sales tax rebate incentive: the Stream and the UnitedHealth Group data centers, both in Chaska, and the Compass data center in Shakopee.
It wasn’t only Minnesota’s tax incentives that turned off the likes of Google, though. Take a map of the nation’s fiber optic network and Minnesota looks like a dead end. While numerous networks zoom in and out of Chicago, Denver and Atlanta, Minneapolis for years was served by just one major link, meaning a data center could get cut off from the Internet if that link failed.
Seeing potential customers in the rise of data centers, Great River Energy did a study last month of the state’s top sites for future data centers, finding two in St. Cloud and one each in North Mankato, Windom and White Bear Township. The idea was to prepare those sites with everything from soil borings, environmental surveys and reliable connections to power, water and fiber optic cable so they would be “shovel-ready” for development.
The survey was the latest in a marketing push that has had Great River Energy partner with Greater MSP (a regional economic development group), and the state Department of Employment and Economic Development pitching Minnesota at data center industry events in Denver, Chicago, New York and elsewhere.
Electric demands for a data center are enormous, with something like half of their costs going to electricity to run and cool the computers. Thus Minnesota’s advantage.
“When it’s below 60 degrees outside, you can use that air to cool the data center,” said Scott Gatewood of the DLR Group, a Minneapolis architecture and engineering firm. Energy is cheap in Dallas, too, but running a server farm there requires air conditioning.
“It’s much greener to do a data center in Minneapolis,” he said.