Lawmakers pursue $1.2 billion data center

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LINCOLN — Right now, the proposed computer data center is called "Project Edge," and its representatives are known to state senators by only their first names.

The 30-something executives don't leave business cards, although they might be from the West Coast, if their concern about early Lincoln lunchtimes is any clue.

But the potential economic impact of their project is no secret among state leaders: a projected $1.2 billion data center that could grow even larger.

It could bring a major high-tech business, one that would become the single-largest consumer of electricity in Nebraska.

The state is in hot pursuit of Project Edge, which is looking at breaking ground in May with an initial investment of $500 million.

State lawmakers are acting quickly to land the economic big fish, swiftly advancing two bills from committees last week in hopes of sweetening Nebraska's tax and electric-rate incentives to better compete with the reported main competitor for the project, neighboring Iowa.

"It's quite an extraordinary investment," said Gov. Dave Heineman, who has been involved in the recruitment effort. "We're one of the finalists, and I think we have an outstanding opportunity to have this occur."

State Sen. Abbie Cornett of Bellevue, who is championing one of the data center bills, used the words "huge" and "unprecedented" to describe the business opportunity.

The first phase of the proposed Project Edge data center would be nearly three times larger than the $140 million, 175-job Yahoo data center lured to La Vista in 2009.

Project Edge is projected to become twice as large as the $600 million center that Google located in Council Bluffs in 2007. Nebraska officials say the proposed new center comes with the potential to expand even more than the $1.2 billion projection used by state officials.

Kearney is rumored to be the leading location for the business, though North Platte and a handful of other outstate cities that have developed shovel-ready "power parks" for data centers have also gotten a look.

Omaha was rejected as a possible location because it didn't have a suitable, ready site, unlike the smaller cities. Even though those cities have much smaller populations, they have amenities that data centers are looking for: cheap, reliable energy; secure sites away from earthquake or hurricane zones; available fiber-optic lines; and wide-open spaces ready for construction.

"It's perfect for an area that doesn't have a lot of unemployment," said Darren Robinson, president of the Economic Development Council of Buffalo County. "We know we can accommodate 30 to 50 high-tech jobs in Kearney."

Robinson, along with other state and local officials, declined to discuss details about Project Edge, citing confidentiality agreements and the fear of scaring off a huge prospect. But several details were culled from interviews and discussions during lawmakers' executive sessions, which are open to reporters.

Confidentiality is part of the commitment made when such big projects come looking, Heineman said, "until they sign on the bottom line."

Lawmakers say they want to begin debate soon on the pair of Project Edge bills because the unnamed company wants to break ground by May 1.

"There is an urgency because a company is looking at Nebraska," Sen. Chris Langemeier of Schuyler said in urging colleagues on the Natural Resources Committee to advance his bill to provide cheaper energy for the project.

The activity is reminiscent of past business recruitment and retention efforts by state lawmakers to land a huge company. Some efforts are unsuccessful. Micron, for example, chose Utah over Nebraska in 1995.

But the Cornhusker State scored an economic touchdown with Yahoo, which was known as Project Cowbell until after the state adopted an incentive bill for the business.

For the first time, to lure a data center, Nebraska is proposing to offer not only a tax break but also a cut in its already low electric rates.

The push for Project Edge comes amid a flurry of requests for tax breaks by other companies seeking to locate or stay in Nebraska as the national economy emerges from the downturn.

Among them, a Lincoln company wants an exemption on biochips, and Yahoo wants a break on equipment it would ship to Nebraska for assembling and shipping to other Yahoo facilities.

Some senators expressed worries about granting so many tax breaks, but they said Project Edge was different.

"You have an opportunity here to catch a big fish," said York Sen. Greg Adams.

Two bills were introduced to lure the data center:

» Legislative Bill 1118, which would extend the Nebraska Advantage Act to data centers that cost at least $300 million and create 30 jobs. Such projects, once they achieved those thresholds, would qualify for refunds on sales and use taxes, an exemption from paying property taxes and a state refund on local personal property taxes paid on items such as computers and supporting software. The tax benefits to the state would come from sales taxes paid on electrical purchases and income taxes paid by employees.

» Legislative Bill 1043, which would allow public power districts in Nebraska to use their excess electrical supplies to negotiate cheaper electrical rates for data centers or other new or expanded projects. Such "economic incentive" rates would be allowed for five years and would require large electrical loads. The bill has been amended so other electrical customers would not end up subsidizing the incentive rates, supporters said.

Adams noted that despite lucrative tax breaks, the data center is projected to pay more in state taxes than it gets in credits during the first three years — almost $50 million more.

After that, the company could claim its first refund on sales and use taxes, projected to be $21 million. By 2017-18 through 2025-26, the state would be providing about $3 million a year in tax credits, according to a legislative fiscal note.

"If they don't come, we're not out anything," Adams added.

Two years ago, Nebraska lawmakers passed a bill to provide incentives for smaller data centers but didn't envision that companies would be seeking even larger facilities.

"I didn't think they'd ever get as big as they are," said Richard Baier, a former Nebraska economic development director who now works for the Nebraska Chamber of Commerce.

But Baier said companies are seeing advantages in consolidating data centers. Security is a big issue, he said, and because of rapidly improving technology, hundreds of millions of dollars of equipment needs to be replaced every two to five years.

Utilities like data centers and their large, constant demand for electricity because they help make power generation more efficient. Communities like data centers because they bring high-paying jobs and massive construction investments and construction jobs.

Large power generators such as the Nebraska and Omaha Public Power Districts say the electrical incentive bill will allow them to make better use of their excess power.

Currently the districts sell their excess power on the open market, usually out of state. Several years ago, prices for such power ran around $50 per megawatt hour, but they have fallen to about half as much in recent months.

If the incentive bill helps attract more data centers to the state, the excess power can be directed to them, said John McClure of NPPD.

Members of the Revenue Committee and Natural Resources Committee were told at their public hearings that the growing demand to store computer data has created the need for 1,000 new, private data centers in the next decade.

"When ethanol was hot, you chased ethanol. Right now, data centers are hot, and if your town fits, you go after them," said Dan Mauk, president of the North Platte Area Chamber of Commerce and Development Corp.

He and other economic development professionals said they've heard the arguments that data centers don't create many jobs compared with the huge investment.

But they create demand for construction jobs, and they spin off related support positions such as computer technicians, specialized air-conditioning technicians, electricians and other good-paying jobs.

"There aren't a lot of 500-employee companies looking to build out there right now," Mauk said.

Cities such as Kearney — one of the sites with an infrastructure-rich power park — might find it harder to compete for companies with hundreds of employees because of low unemployment rates. Unemployment in Kearney is currently less than 3 percent, said Robinson, the economic development official.

Iowa already has proved capable of landing major data center projects with incentive packages that include sales tax exemptions on the purchase of electricity, backup power supplies and computer equipment.

However, Bob Mundt of the Council Bluffs Chamber of Commerce said his community was not among those eyed by Project Edge.

Nebraska officials said that if the state lands one huge data center, others are likely to follow, because they tend to "cluster" where power supplies and skilled workers are located.

Even the state's cold weather is an asset, they said, because of the need to cool the heat-producing computer equipment that fills data centers.

Nebraska just needs more tools to compete, officials said.

"This legislation," Robinson said, "helps all Nebraska communities seeking to diversify with high technology."

Contact the writer:
402-473-9584, paul.hammel@owh.com;
402-473-9587, joe.duggan@owh.com

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