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North Carolina Ups Ante in Bid for Growing Data Center Industry

October 08, 2015

North Carolina Gov. Pat McCrory recently signed an economic development bill (HB 117) that would expand the operations of the state’s Job Development Investment Grant (JDIG) fund. The fund, which offers grants to companies for job creation and expansion, will have a higher annual cap, and a contingency to offer even more funds in years in which a “high-yield project” is supported. The North Carolina Competes Act also offers targeted support for a particular type of job creator: data centers. Data centers that invest $75 million or more are now eligible for significant tax incentives. North Carolina’s incentives are intended to help the state compete with a number of other states that have targeted this industry.

Under the new economic development legislation, the state can award up to $20 million a year through the JDIG fund for job creation projects, though that figure grows to $35 million in years in which a grant is awarded for a high-yield project. A high-yield project is defined as one in which a business invests at least $500 million in private funds and creates at least 1,750 jobs. The state’s biennial budget, which was signed by Gov. McCrory last month, replenishes the fund with $129.5 million over the next two years.

The NC Competes Act makes a few changes to help target this support toward regions of the state with greater need. To be eligible for a (non-high-yield) grant, a business only has to create 10 jobs in the highest need, “tier one,” areas. The number grows to 20 jobs in tier two areas and 50 jobs in tier three. The legislation implements similar targeting for the state’s One North Carolina Fund. The fund supports job creation in knowledge-driven industries, with a match from local government. That match level is now based on the need of the area, with the state providing $3 for every $1 contributed by a tier one local government, $2 in tier two and $3 in tier three.

Data center projects receive additional support through a suite of tax incentives, which now have a lower eligibility barrier. Previously, a data center had to invest $150 million to qualify for these incentives, which now falls to $75 million.  The bill further opens up these incentives for smaller data center projects by allowing tenants of multi-user data center complexes to be eligible. Before this change, a company had to construct its own facility to qualify.

A recent analysis by the Associated Press notes that states have awarded about $1.5 billion in tax incentives to data centers over the past 10 years. At least 23 states have explicit data center tax incentives, while another 16 have provided incentives to data center projects through general economic development programs. North Carolina’s $75 million minimum threshold, however, is one of the lowest in the country.

Data Center Knowledge, an industry website, notes that these incentives are often controversial since they tend to create many jobs in the construction of massive centers, but that number falls once the structures are completed. Incentives, such as the new legislation in North Carolina, that encourage multi-tenant arrangements have the potential to alleviate this problem. Multi-tenant sites tend to employ more people since both the facility owner and the tenants tend to employ staff.

North Carolinatax credits, state budget