Public subsidies for the Apples of the world are real puzzlers

Minnesotans have joined one of the most baffling trends in recent economic development history by looking to subsidize a technology giant, in this case Google, in exchange for a modest number of jobs in a new data center.

There are a number of these massive facilities, sometimes called hyperscale centers, here in the Midwest. While it's certainly possible to have missed some, a good-faith effort to find one built without any public subsidy came up empty.

In news that seems emblematic for the industry, it was all smiles a couple of years ago in Des Moines when Apple executives and state officials celebrated Apple's selection of Iowa for its new data center, putting the state "on the world stage," as Iowa's governor put it.

A Des Moines Register columnist promptly pointed out that taxpayer subsidies of more than $200 million were going to a company with more than $250 billion in cash and securities, enough money to run Iowa's state government for more than 35 years.

With just 50 promised full-time jobs once the Apple center was operating, the subsidy worked out to be more than $4 million per job.

Data-center projects around the Midwest have been built in former cornfields just outside of metro areas, but the one now coming together in Sherburne County, northwest of Minneapolis, has an unusual wrinkle to it.

It's hard to imagine even talk of a Google facility in the town of Becker were it not for the looming retirement of units at the Sherburne County Generating Station, or Sherco, the state's biggest electric power plant.

Sherburne County doesn't really need the jobs, with the recent unemployment rate of about 3.7 percent. The area is part of the commuting zone of the greater Twin Cities, too, where the unemployment rate is 2.8 percent.

It could sure use some more valuable real estate to tax though, with the coming slide in value at Sherco as the two oldest coal-fired units are shut down.

The Sherco facility (partly owned by another utility besides Xcel) has a taxable market value of about $700 million, as of the most recent financial disclosure document filed by Sherburne County for its outstanding bond issues.

That means just this one facility, by itself, now accounts for roughly 15 percent of the whole county's property tax capacity.

For Becker, a town of not quite 5,000 as of the most recent census estimate, the Sherco facility makes up not quite 80 percent of the property tax capacity, according to a similar financial filing.

Local officials didn't respond to calls, so it's not clear how giving away property taxes to attract a project to generate property taxes makes sense. On the other hand, it's hard to understand the zeal to land these big data centers just about anywhere.

Big companies have been busily building, too, and not just Google and Facebook but IBM, Microsoft and many other firms using what's called the cloud.

Cloud computing really just means using the internet to reach data and software on racks and racks of computers called servers that run all day, every day in data centers.

Google CEO Sundar Pichai recently put up a blog post outlining spending plans as the company looks to invest $13 billion in data centers and offices around the country this year. Last year Alphabet Inc.'s Google unit spent about $25 billion on capital items, presumably most of it for data centers, about double what it spent in 2017.

The map that accompanied Pichai's blog post didn't have a dot for Sherburne County on it, but one funny aspect of this story was that Nebraskans were surprised to see a dot in eastern Nebraska.

The big tech companies don't seem all that interested in disclosing much information as these projects take shape, details like their own involvement. In Nebraska, public officials had been responding to the desires of a company called Fireball Group LLC, and officials weren't eager to volunteer much about the incentives being offered, either.

In Nebraska, however, there's special financial support for projects of at least $200 million and 30 employees. Fireball Group — we know, Google — will reportedly employ between 100 and 200 people once operating.

Our neighbor just to the south has a lot of recent experience with data centers, too. One news account of Microsoft's ambitious plans in suburban Des Moines indicated that the big Seattle company hopes to develop more than 1 billion square feet in its latest of three big projects in the area. Even if it's only 1 million square feet, that's awfully big.

But here's the story's punchline: When complete, this Microsoft facility won't have even 100 permanent jobs.

With these data centers, we seem to be coming close to the kind of big facility once predicted by the organizational leadership scholar Warren Bennis.

It's hard to imagine anyone offering to subsidize a job for a dog.