Why the rise in data centers? A policy analysis

Governor Gretchen Whitmer signed the Enterprise Data Center Sales & Tax Use Exemptions legislation in 2024, aiming to attract data center development to Michigan by exempting construction and equipment purchases from the 6% sales and use tax. The state highlights Michigan's abundant water resources and skilled workforce as key advantages, and has expanded these exemptions to include private-use facilities and Brownfield properties. However, this policy has drawn scrutiny from local communities and financial analysts. While the legislation mandates the creation of at least 30 jobs compatible with local median wages and aims to prevent electric rate increases for consumers, concerns persist. The Michigan Senate Fiscal Agency estimates these tax exemptions could cost taxpayers $42.5 million, raising questions about whether the marginal job growth justifies the associated burdens. For instance, Nevada-based Switch Inc. reportedly created only 26 jobs by 2022, despite pledging 1,000 in 2015. Data centers are highly water-intensive, with Michigan Public estimating usage between 300,000 and 5 million gallons per day. Although Michigan's Great Lakes region offers vast water supplies, critics caution that only a small percentage of this capacity is restored by inflows. The article highlights that data center water lines often connect to municipal systems tapping into aquifers, posing a risk of lowering water tables and depleting wells, especially in vulnerable rural areas. A University of Michigan report suggests that greater transparency from data center developers could help restore agency to local governments and communities facing these developments.