Michigan House OKs tax breaks to lure Google, Microsoft data server farms

• A divided Michigan House voted Wednesday to approve proposed tax breaks for data centers
• Proponents hope to capitalize on a national building boom for the massive server farms, as tech companies look to ramp up computing capacity
• But the facilities are also energy hogs, prompting fears they’ll hinder Michigan’s climate progress and raise utility rates

LANSING — Michigan is one step closer to offering tens of millions of dollars in tax breaks for tech companies to build large server farms in Michigan, following a Wednesday vote by a divided state House.

The legislation, SB 4906, is part of a two-bill package to exempt large data centers from sales and use taxes on their equipment through at least 2050. 

The bill hopes to lure investment from tech giants like Microsoft and Google amid a rush to build facilities to power artificial intelligence and provide cloud storage for computers and phones. But the centers typically use lots of energy and don’t provide many jobs, raising concerns from environmentalists and others.

The legislation passed 64-45 after several lawmakers who previously had opposed the legislation voted for it. The package now returns to the Senate, which approved an earlier version but must agree to new amendments.

“What we saw is the coalition that's existed between the parties, that's pro-economic development, coming together on this,” said the bill’s chief sponsor, Joey Andrews, D-St. Joseph.

Other bills approved Wednesday would create a new research and development tax credit for Michigan businesses. The credit is expected to cost the state roughly $100 million a year in taxes.

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An analysis by the Senate Fiscal Agency estimated the proposed data center tax breaks could reduce state and local tax revenue by more than $90 million through 2065.

Proponents contend the centers will create jobs, tax money and local revenue from electricity and water sales. In order to qualify for the tax break, each data center operator would be required to invest at least $250 million and create 30 jobs paying 150% of local median wage.

“You think about the number of places around the state that are looking for a new lease on life, that used to be manufacturing centers and now aren't,” the bill’s chief sponsor, Andrews told Bridge in June. “This is an opportunity for them.”

Environmentalists call the breaks unnecessary corporate giveaways that threaten to undo Michigan’s climate progress and inflate energy costs.

“After losing an election in which the cost of living played a central role, the priority of Democratic leadership in Michigan was to push through a bill to override 28 of their own caucus members voting no, that will raise regular Michiganders’ utility bills,” said Christy McGillivray, the Michigan Sierra Club’s political and legislative director.

Democratic Gov. Gretchen Whitmer has not weighed in publicly on the bills, but both DTE Energy CEO Jerry Norcia and environmental opponents like McGillivray have said she is a behind-the-scenes supporter.

A recent Bridge Michigan story found that existing tax breaks created specifically for the west Michigan Switch data center have saved the company millions annually. 

Switch initially missed a deadline to deliver promised jobs and rather than penalize the company, state officials amended their agreement. 

Since then, Switch has met the jobs goals.

Data centers are a booming industry as tech companies look to expand their computing power for artificial intelligence, cloud computing and other applications. Global data center capacity is expected to double in the next five years. 

But the investments have often come at a cost, forcing some utilities to keep fossil fuel-burning power plants online longer than anticipated in order to serve the energy-hungry facilities. Some utility ratepayers have also seen electricity rate increases to help fund infrastructure upgrades that benefit data centers.

Proponents of the data center incentives contend Michigan can be a home for the industry while avoiding those issues. Opponents are skeptical and say the bills don’t contain enforceable requirements for data centers to use green energy, or expressly protect utility customers from rate increases. 

The bill’s passage come one month after Microsoft announced a purchase of 316 acres in Kent County for a prospective data center development.

Officials in Andrews’ district are also hoping to market a 280 acre parcel near Benton Harbor to a data center operator.