News: CJ Exclusives

Did SC Get a Better Google Deal?

Company officials say the two deals differ and are difficult to compare

Web search engine company Google officially announced yesterday it would build a $600-million data center near Charleston, S.C., which would represent a similar investment to one announced earlier this year in Lenoir, N.C., in Caldwell County.

Little information was available yesterday about the details of tax breaks offered by South Carolina and by local government officials there. A Google official said the company’s deals with the two states were “not an apples-to-apples comparison.”

Economic development officials for North Carolina, Lenoir, and Caldwell County have been criticized by some for giving away too much in tax revenues to persuade Google to build a data center — also called a server “farm,” because it is a large facility containing banks of computers that operate its Internet business — in the western part of the state.

Incentives granted by both states include job development investment grants, which rebate a percentage of withholding taxes per new job created. Both North Carolina and South Carolina estimate that Google could reap about $4.8 million in those tax breaks from each state if it reaches its targets of roughly 200 new jobs at each facility.

Also, both states exempt taxes on electricity and investments in equipment and machinery. The South Carolina Department of Commerce Web site did not indicate any other state incentives made available to Google. The company will pay sales tax on construction materials; an estimated $7 million for each project in each state.

The difference between the two states may be in local government tax breaks. Caldwell County and the City of Lenoir will give back 100 percent of Google’s property taxes, and 80 percent of its real estate taxes, for a period of 30 years.

But according to the S.C. Department of Commerce, Berkeley County will receive an estimated $1.96 million in property taxes annually. Its press release said, “This revenue is the equivalent of the property tax collected annually from 1,000 homeowners with homes valued at $200,000.” The project was officially announced in South Carolina yesterday, and no state or local officials were available to explain specifics about the deal with Google.

However Don Hobart, legal counsel for the N.C. Department of Commerce, said South Carolina “extend[ed] a major property tax incentive” to Google through its “Super FILOT” (fee in lieu of property taxes) program. The Economic Development Partnership of Aiken and Edgefield Counties in South Carolina explains the program on its Web site:

Companies making significant capital investment and job creation can qualify for a fee-in-lieu of property taxes (FILOT). This is a discretionary incentive negotiated with the county. It can offer significant savings to a company. First, the assessment ratio can be reduced from 10.5 percent to 6 percent under a FILOT (4 percent for a Super FILOT). This represents savings to a manufacturer greater than 40 percent on their property taxes. Second, the agreement can be up to 20 years under a FILOT (up to 30 years for a Super FILOT). This results in long-term savings to a company and knowledge of their property tax liability for the length of the agreement, which allows advantages for budgeting. This incentive replaces the property tax abatement incentive.

“We’ll pay $58.8 million over the 30 years ($1.96 million
per year) in real and personal property taxes through South Carolina’s FILOT program,” said Barry Schnitt, a spokesman for Google.

Some news reports about the negotiations for the Lenoir data center portrayed a direct, one-on-one competition between North Carolina and South Carolina, which implied one of the states would lose out. In reality, according to Google officials, 12 locations in seven states are under consideration for similar server facilities. The company had long been researching the Charleston-area site, a fact known to North Carolina and its local government officials.

“Everyone knew from the beginning that there were multiple projects and multiple potential sites for these projects,” Schnitt said. “Is it possible that the Lenoir site could have ended up at Mount Holly [in Berkeley County]? Yes, but then the Mount Holly site would have ended up somewhere else.”

Schnitt said some N.C. officials even visited the Berkeley County site, “so they were very much aware of what was going on.” Caldwell County Manager Jack Horton, the only county official authorized to answer questions about the Google project, was not at his office yesterday. But Hobart confirmed knowledge about the advanced negotiations with South Carolina and also Google’s interest in other states.

“[Google] explained it needed to build multiple data centers at various locations in both the short-run and in the long term,” Hobart said in an e-mail message. “We understood the Caldwell project could be undertaken at various different locations, which included sites under consideration in South Carolina. North Carolina’s ability to be competitive for such an investment hinged on its ability to mitigate costs that other states did not impose and overcome disadvantages particular to the Caldwell site or relative to other locations.”

Google bought a 520-acre site at the Mount Holly Business Park last year for almost $17 million. Schnitt said it isn’t unusual for the company to buy property before negotiations with governments are complete, so they can test to see whether the land is appropriate for the facility it needs to build. He said doing so represents a minimal risk compared to the total investment Google makes in each of its facilities. He could not recall an instance, however, in which the company purchased land but then failed to use it because it was unworkable. Hobart was familiar with that practice also.

“The mere fact that a large, publicly traded company owns property or has options on property is no assurance that it will develop that property,” he said.

Schnitt said Google does a full economic analysis of what a new facility will cost for them to operate, which includes capital investment, power costs, labor costs, and taxes, among many other expenditures. But would Google have come to North Carolina, or South Carolina, without economic incentives?

“No,” he said, “because then the whole part of our economic analysis doesn’t come out right.”

Paul Chesser ([email protected]) is associate editor of Carolina Journal.