In City Council, a plan to turn Chicago’s data pain into a tax-revenue gain

By John Pletz | Crain’s Business Chicago

Inside a data center

Credit: Massimo Botturi/Unsplash

Envious of the data center boom in the suburbs and elsewhere around the country, Ald. Gilbert Villegas, 36th, thinks he has the ticket to boost the city’s share of the pie and increase property tax revenue.

Villegas, who chairs the City Council’s Committee on Economic, Capital & Technology Development, proposes 8% of the city’s new data spending go to vendors who are required to store the information in Chicago facilities. He predicts the ordinance would spur data center construction in the city that could one day generate $50 million to $100 million a year in property tax revenue, as well as jobs to build the facilities.

“It’s an opportunity to create revenue without having to go to the taxpayer,” says Villegas. “It brings property online and invests in communities that haven’t benefited from tech investments.”

Villegas is hoping the city can replicate the success of Loudoun County, Va., which has one of the nation’s largest concentrations of data centers just outside Washington, D.C. The county gets $800 million a year in taxes from property and equipment related to data centers, which it says has led to a reduction in the overall tax rate over the past 12 years, according to a presentation at a committee hearing in February.

Data centers are one of the fastest-growing sectors of real estate, fueled by rising demand for artificial intelligence, video streaming and use of mobile devices. Adding to the growth is a state tax incentive for data centers that passed in 2019.

The Chicago region is the nation’s third-largest market for data centers, the often-massive buildings that house computer servers required to run websites, process stock trades or route wireless calls and data.

But much of the local construction boom has taken place in the suburbs near O’Hare Airport, where land is cheaper and access to electricity and optical-fiber networks is plentiful. Despite having 29% of the Chicago metro area’s population, the city has just 21% of the region’s data center capacity, according to Intelligence & Strategic Advisors, a consulting firm based in Oak Brook.

“A data center is a real estate deal,” Villegas says. “This is an opportunity for minority and women to participate in the space.”

Craig Huffman, who hopes to break ground next year on a 50-megawatt data center on the Illinois Medical District campus on the Near West Side, says the ordinance would provide a boost to his project and others like it.

“One of the things people don’t realize is more than $400 million of the city of Chicago’s budget is IT spend, which supports companies that use data centers that are in Chicago, but many do not,” says Huffman, CEO of Metro Edge Development Partners. “There should be incentives for more investment to happen.”

Villegas also proposes another 6% of the annual data spend go to vendors using data centers within Illinois. He introduced the ordinance a couple of months ago and plans to bring it up for a committee vote next month. It has drawn mixed reviews from the private sector.

“We appreciate Ald. Villegas’ leadership in recognizing the many benefits data centers provide local communities, including significant tax revenue, catalyzing supply chain and service ecosystems, creating jobs for thousands of construction workers as facilities are built and providing quality, high-wage jobs to support ongoing operations,” Josh Levi, president of the Data Center Coalition, a national trade group whose members include tech giants Google, Meta and Microsoft, said in a statement.

The Chicagoland Chamber of Commerce says the ordinance has potential downsides.

“While we appreciate Ald. Villegas recognizing the many benefits of data centers, we are concerned that his ordinance will give data centers a reason to cross Chicago off their lists for site selection,” the chamber says in a statement. “This ordinance would be the first attempt in the country to legislatively mandate data-residency requirements and would likely result in unintended consequences.”

“Further, the ordinance views data processing in an antiquated way and does not reflect the way data actually operates. We believe there are better ways to encourage data-center growth across Chicago and stand ready to continue working with Ald. Villegas and other members of City Council to ensure Chicago remains a leader in the data center space.”

To see the full article, visit this link: https://www.chicagobusiness.com/technology/measure-would-incentivize-data-centers-chicago

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