Mastering Data Center Development: Insights from Whit McGreevy and Tara Gorman

In this post, Womble Partners Whit McGreevy and Tara Gorman provide a high-level overview of potential economic incentives for data center development. They delve into the significance of economic development incentives and the importance of engaging in early discussions and negotiations with state and municipal economic development decision makers. Key factors in site selection and the role of government approvals are also explored. Additionally, they highlight the value of utility incentives, property tax abatements, job credits, and non-monetary incentives in ensuring the success of data center projects.

Tara Gorman: Whit, could you explain the significance of economic development incentives for data center projects?

Whit McGreevy: Economic development incentives are pivotal in attracting investment and job creation for data center projects. These incentives are designed to foster competition among jurisdictions, ensuring that the most advantageous location is selected for the project. Incentives are all premised on competition between jurisdictions to attract investment and jobs. If a county and a state know that a data center developer has committed to locating the planned data center in a targeted location, there is limited willingness by the state or local government to offer any kind of incentive for that investment. The real incentives come into play when there is competition for the location of the data center. Our experience is that incentive development negotiations need to start as early in the project process as possible or else there is a chance that the competition element, which drives the incentives, will be lost.

Tara Gorman: How early should incentive negotiations commence in the data center project timeline?

Whit McGreevy: Incentive negotiations should begin contemporaneously with other early project discussions, such as power and water requirements. Starting these conversations early is crucial to securing the best incentives and ensuring the project's success.  Still, data center operators and developers would do well to remember one of the widely-accepted maxims about incentives – bad sites do not magically become good sites simply because of incentives.  

In other words, there needs to be a compelling business case for each location under consideration. Developers and operators also need to be aware of each community’s attitude towards data centers, as there is significant “not-in-my-backyard” animosity towards data centers in certain areas. 

Tara Gorman: What are other key factors to consider when selecting a site for a data center?

Whit McGreevy: When selecting a site for a data center, it is essential to consider not only the availability of power and water but also the site's suitability for supporting a data center, and the workforce and services available. Ensuring that all shortlisted sites are legitimate and justifiable helps in negotiating better incentives. When a data center is evaluating three competitive sites, it makes a big difference in the conversations with states and counties as you are working through incentives because the targeted locality will see the other legitimately competitive sites and will generally put its best foot forward so as not to lose out to another competing location.

Tara Gorman: Can you elaborate on the importance of government approvals in the context of data center incentives?

Whit McGreevy: Government approvals are critical in the incentive process. It is important to carefully coordinate the timing of government approvals with the regulatory, power, and real estate lawyers to avoid any delays or issues that could impact incentives or other approvals. Building relationships with state and county partners early is also vital. You need a team approach to ensure you do not trip over government approval timelines that could eliminate incentives or impact other regulatory or real estate approvals. Government approvals often require public announcements, county and/or municipality approvals, and state incentive organization approvals that need to be carefully coordinated.

Tara Gorman: What role do utility incentives play in data center projects?

Whit McGreevy: Utility incentives, such as those related to power and water, are among the most important incentives for data center projects. Early conversations with utilities can significantly impact the project's viability and success. Given the importance of power and water to data center projects, utility availability and incentives often makes or breaks the deal.  Starting conversations with utilities early is as important as conversations with state and local economic development decision makers. 

Tara Gorman: How do property tax abatements and job credits influence data center projects?

Whit McGreevy: Property tax abatements can make a significant difference in the viability of a data center project, especially given the enormous (often $1B+) capital investments involved.  Depending on the property tax scheme of the state and/or municipality under consideration, there can be wide variations between the property taxes in various jurisdictions. Job credits, particularly for high-paying jobs, can also be a major incentive for both urban and rural areas. 

Tara Gorman: What are some non-monetary incentives that can be valuable for data center projects?

Whit McGreevy: Non-monetary incentives, such as expedited regulatory and permitting review and job training programs, can be extremely valuable. These incentives can help bring a data center online more quickly and efficiently. Expedited regulatory and permitting review can also make a major difference in getting to market faster. Job training programs help data center operators obtain the qualified workforce needed to be successful. They also allow companies to engage with local talent and, where possible, upskill the local workforce.

Tara Gorman: Finally, what advice would you give to data center developers when negotiating incentives?

Whit McGreevy: My advice to data center developers is to start incentive negotiations before the clock starts running, build strong relationships with state and local partners, and ensure that all shortlisted sites are competitive and justifiable. Additionally, having a team approach with regulatory, power, and real estate lawyers is essential for a successful project. Finally, ensure that you are comparing apples to apples across different tax structures with the help of your state and local tax lawyers and accountants.

Tara Gorman: In conclusion, we hope our discussion provides valuable insights into the complexities of data center development and the importance of economic development incentives.  We explained the significance of economic development incentives for data center projects. Whit discussed the importance of early incentive negotiations, key factors in site selection, and the role of government approvals. Whit explained and highlighted the value of utility incentives, property tax abatements, job credits, and non-monetary incentives in ensuring the success of data center developments.

About Tara Gorman Tara is a Co-Leader of the WBD Data Center Team. Tara maintains a diverse real estate practice, concentrating on commercial real estate acquisitions and sales; office, retail, and data center leasing; and telecommunication license agreements. She has represented a range of institutional investors in connection with their real estate investments, as well as governmental and quasi-governmental agencies with respect to their real estate holdings.  

About Whit McGreevy  Whit is a Co-Leader of the WBD Data Center Team. He focuses his practice on economic development and incentives. He advises clients on available federal, state, and local incentives and subsidies for domestic and international companies that are locating or expanding their operations throughout the U.S. His experience includes securing New Markets Tax Credits, state and local grants, tax credits related to job creation and investment, and substantial property tax reductions on behalf of his clients. In connection with his economic development and incentives practice, Whit routinely assists clients with ancillary corporate matters, including the formation of new entities and advice on a wide variety of commercial agreements relating to his clients' operations.