Business and Economy
5:37 am
Tue June 24, 2014

Why Data Centers Are Choosing Iowa

Data centers store digital information off site from a company’s headquarters.  In the past couple years tech giants Google, Facebook and Microsoft have all announced plans for new facilities in Iowa.  

John Rath blogs for Data Center Knowledge and works as a facilities manager for OneNeck IT Solutions in Cedar Falls. He says one advantage to building in Iowa is a low incidence natural disasters.

“You want to build however you can avoid that (natural disasters) and have your facility maintain its up time. If you look at maps, Iowa has a very low risk. Tornado is about the only thing and you can build to mintage that.”

Rath’s OneNeck office--a sort of hotel for digital information--can withstand an F4 tornado.  Regardless of the weather in Cedar Falls, clients from around the Midwest have access.

Iowa has some of the cheapest electricity in the U.S. Since electricity is a data center’s biggest bill, Iowa State economist Dave Swenson says the state's a logical choice when tech companies are looking to expand.

“These companies consume an unbelievable amount of electricity. They’re monsters. They eat electricity. That’s how they run.”

Director of the Iowa Economic Development Authority Debi Durham says Iowa’s cheap electricity is due in part to the fact the state doesn’t apply sales taxes to the utility.  Additionally, the infrastructure of how Iowa’s electric grid's owned and operated keeps costs low.

“Part of it is the investments of the new renewable, and the diversity of the portfolio, and then you have really strong investor owned utilities here. And then you couple that with the rural electric coops which are also strong in economic development, and then the third player is s the municipalities, which tend to be very competitive themselves.”

In 2013, 27.7 percent of the electricity generated in Iowa was wind-powered.  Iowa's ranked first in percentage of generated-wind electricity since 2009, according to the American Wind Energy Association.

Wind not only keeps electricity costs low, but powering data centers with renewable energies helps tech companies with public image.

In 2010, around the time Facebook started building its own data centers, the environmental organization Greenpeace ran a campaign asking to company to “unfriend coal.”

Gary Cook heads Greenpeace’s IT campaign. He says both Google and Facebook prioritize renewable energy access.

“They don’t want their brand associated with dirty energy…Their customers have expectations.”

In an email, Facebook wrote wind was a big draw.  The company plants to operate its data facility 100 percent on wind thanks to an agreement with utility company MidAmerican Energy.

Facebook will receive all its energy from a 138.6 megawatt MidAmerican wind farm in Grundy County. Google also plans to power the first phase of its Council Bluffs data center completely on MidAmerican wind.

As of now, Microsoft isn’t following suit.  The company plans to operate its new data center on roughly the same energy sources as the rest of West Des Moines--wind, coal, natural gas, oil and hydro-electric.

What arguable seals the deal for all three tech giants are Iowa’s attractive tax incentives. ISU’s Dave Swenson says in Iowa, local governments have more latitude with tax-increment financing, or TIF.

“Other states usually, usually are much more circumspect both in the amounts, the duration, the scope and the type of business assistance that they offer. Iowa is much less so.”

The use of TIF expanded in the 1980s during a harsh recession and the Farm Debt Crisis. “The state’s economy was hammered massivel.  There was this sense that we needed to have…economic development tools and strategies.”

Swenson thinks that communities give up too much property taxes for what they receive. However, Debi Durham says the state isn’t going into these agreements blindly.

“We hold all of our clients accountable…there’s a day of reckoning down the road, and if they don’t meet those numbers then we exercise claw-backs. Which means you have to pay back incentives.”

Additionally, in the TIF agreements the companies all promised salaries starting in the the $42,000 to $52,000 range. The three new data centers will employee approximately 150 jobs to Iowa.

When Microsoft announced West Des Moines as the site for its newest datacenter, many in the company’s home state of Washington speculated Iowa’s generous tax incentives tipped the scales.

It's difficult to gage the importance of TIF. Both Microsoft and Facebook declined to be interviewed for this story.  Is cheap wind energy enough to lure these companies

Google built a data center in Council Bluffs in 2008. To hear how the facility shapes the regional economy listen to this piece by IPR's Durrie Bouscaren.