The Impact of Data Centers on the State and Local Economies of Virginia
Northern Virginia is the largest data center market in the world, but the data center industry has an important footprint in every part of the Commonwealth of Virginia. Central Virginia and Hampton Roads each account for almost ten percent of overall industry employment in the state. Data center industry pay has increased twice as fast as the statewide average since 2001.
We estimate that in 2018 the data center industry in Virginia directly provided approximately:
- 14,644 full-time-equivalent jobs with an average annual pay of $126,000,
- $1.9 billion in associated pay and benefits, and
- $4.5 billion in economic output.
Taking into account the economic ripple effects that direct investment generated, we estimate that the total impact on Virginia from the data center industry in 2018 was approximately:
- 45,290 full-time-equivalent jobs,
- $3.5 billion in associated pay and benefits, and
- $10.1 billion in economic output.
Data centers pay millions of dollars in state and local taxes in Virginia, even though Virginia has a sales and use tax exemption on some equipment for data centers that are large enough to qualify for the exemption. In addition to the taxes paid directly by data centers, local governments and the Commonwealth of Virginia collect tax revenue from the secondary indirect and induced economic activity that data centers generate. We estimate that in 2018, data centers were directly and indirectly responsible for generating $600.1 million in state and local tax revenue in Virginia.
At the local level data centers provide far more in county or city tax revenue than they and their employees demand in local government services. For example, we estimate that for every dollar in county expenditures that the data center industry caused in 2018, it generated:
- $8.60 in local tax revenue in Henrico County, and property taxes there would have had to rise by 1 percent without the data center induced tax revenue.
- $15.10 in local tax revenue in Loudoun County, and property taxes there would have had to rise by 21 percent without the data center induced tax revenue.
- $17.80 in tax revenue in Prince William County, and property taxes there would have had to rise by 7 percent without the data center induced tax revenue.
In June of 2019, Virginia’s Joint Legislative Audit and Review Commission (JLARC) published an evaluation of the state’s data center sales and use tax incentive. JLARC found that 90 percent of the data center investment made by the companies that received the sales and use tax exemption would not have occurred in the state of Virginia without the incentive. Instead, that data center investment would have occurred in other states. So, the “cost” of the State data center incentive is only 10 percent of the amount of State sales tax revenue exempted. In fact, in 2017, the data center tax incentive generated $1.09 of State tax revenue for every dollar that it exempted; and in 2016, the incentive was revenue neutral. Since 2013, after the General Assembly significantly revised the Virginia data center incentive, the State has recovered 75 cents of every dollar of potential tax revenue that it exempted. In the process it created thousands of Virginia jobs with billions of dollars in pay and benefits and billions of dollars in economic activity throughout the state.
Virginia is one of 31 states that actively offer incentives to attract data centers to locate in their states. Several states are in the process of revising their incentives to remain competitive. Virginia’s data center incentive is one of the most restrictive in the country. Of the 31 states that actively offer data center incentives, only 11 require a minimum number of new jobs to qualify for an incentive, and only Virginia, Mississippi, and Nevada require the creation of 50 or more new jobs.
Virginia’s data center incentive has been important in the spread of technology industries across the Commonwealth and in attracting smaller data centers that do not qualify for the incentive to invest in the state as well. Recently several localities have reduced their local property tax rates in order to attract data centers to support their economies.
This report was prepared by Mangum Economics
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