Google wins more tax breaks for two new data centers in The Dalles

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The city council of The Dalles voted unanimously Monday night to grant new property tax breaks for two more Google data centers, worth tens or hundreds of millions of dollars to the tech giant. Wasco County commissioners voted unanimously in favor of the tax breaks last week.

Before Google proceeds with new construction in its property along the Columbia River, the company also wants agreement from the city on a deal to substantially increase the water available to the company to cool its massive data centers. The water pact, which has generated skepticism among some residents of the small city, is due for a vote early next month.

Google says it has spent $1.8 billion on its data centers in The Dalles over the past 15 years. The company said Monday that it expects to say more about its plans in early November.

The new tax agreement is a vastly better deal financially for the local governments than three prior deals for Google data centers built over the past 15 years.

Google would pay $3 million up front for each new data centers. It would then pay half of the normal property taxes for the first new data center and 60% of regular property taxes for the second.

While Google employs just about 200 in The Dalles, two new data centers combined could provide more than $6 million annually to the city, county and local government agencies. That’s according to county estimates, based on $600 million in spending on each new data center.

Potentially, that represents a 15% increase in what Wasco County collects in total property tax revenue each year, and it’s more than double what Google paid under three prior agreements.

Google’s new tax deal

Duration: 15-year tax exemption for each new data center

Savings: Half off the property taxes associated with the first new data center, and 40% off a second. However, Google would also pay $3 million, up-front, when it begins construction of each new project. On a $600 million data center, The Dalles expects Google would by $3.3 million annually.

By comparison: Google’s first three deals had up-front payments of $280,000, $1.2 million and $1.7 million, respectively. It also paid $800,000 annually afterward in the first two deals, and at least $1 million annually in the third deal.

Additionally: Google would transfer 35 acres of property to Wasco County and give The Dalles and the county an option to buy the new data centers’ land from the company if it ceases operations.

Still coming: A separate deal, scheduled for a vote next month, would commit Google to pay $28.5 million to expand The Dalles’ water supply to meet the company’s future water needs.

City council member Dan Richardson acknowledged Monday that some members of the community oppose tax breaks for big companies like Google. He said he’s troubled by that idea, too, but feels The Dalles has to accept it.

“That’s sort of the reality of the world we live in, that cities and states have to compete, will compete, for big projects, and we either negotiate to try and find some beneficial agreement or get nothing,” Richardson said. “Google can go many places. It doesn’t have to build here, or build more here.”

Oregon has some of the nation’s most lucrative tax breaks for data centers and puts no limit on how much local governments can offer. On the one hand, that gives small Oregon cities and counties the autonomy to make their own decisions. But it also forces them to compete with one another to offer the biggest tax breaks.

The state’s program of industrial tax exemptions, which dates to the 1980s, was conceived to draw large manufacturers and other major employers, long before the data center industry emerged. In the 21st Century, it’s proven to be an enormous windfall for wealthy Silicon Valley companies, which receive Oregon tax breaks worth more than $120 million annually.

Left unaddressed in The Dalles’ new tax deal is how much Google will pay in property taxes on its first corporate data center, which opened in 2006. It comes onto the tax rolls next year when its original tax breaks expire after 15 years.

If Google continues to operate the aging facility, it could provide several million dollars more each year in new property taxes for the small community.

But Google won’t say whether it will continue running the original facility once it becomes taxable, or if it will make other changes – like moving the most expensive equipment into newer, more advanced data centers still covered by tax deals.

Data centers are still a relatively young industry; Google’s original data center in The Dalles was its first such facility anywhere. So it’s not clear how long the company will continue using it, or in what way.

Google and the Oregon Department of Revenue are currently negotiating over how to assess that original data center.

It’s an important precedent for Oregon’s multibillion-dollar data center industry.

Facebook, Apple and Amazon have collectively spent billions of dollars on server farms in small towns from Prineville to Hermiston, drawn by some of the nation’s largest tax breaks. All those facilities could eventually generate huge tax revenue for those communities – or very little, if the companies shut them down when they become taxable.

The Dalles and Wasco County didn’t seek any assurances from Google on its future operations or on the taxing methodology on the original data center in conjunction with the new tax deal. City Councilor Darcy Long-Curtiss said the onus is on Google to do the right thing.

“We’ll see how good of a partner Google is,” she said before Monday night’s vote. “Do you they try to get out of it, or do they just say, ‘Yep, that’s it,’ (pay their taxes) and not try to play shenanigans?”

— Mike Rogoway | mrogoway@oregonian.com | twitter: @rogoway | 503-294-7699


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