Data Centers: bringing billions of dollars to the new Virginia economy

Published May 14, 2018 by James Leach

Did you know that Virginia is the No. 1 market for data centers in the United States? Even more interesting, the data center market in Virginia is larger than the data center market in any other entire country in the world. The impact of this market leadership is that data centers are bringing billions of dollars into the New Virginia Economy.

A recent report prepared by Mangum Economics and published by the Northern Virginia Technology Council (NVTC) shows how the success of data centers in Virginia is improving the quality of our lives. I call it the “Data Center Multiplier Effect.”

First, there is The Jobs Multiplier. Every job in a data center creates two jobs in companies that serve the data centers. These are good jobs in engineering, technology services, software development, and operations – paying on average twice the private-sector wages in Virginia. And 25 percent of these jobs are located outside of Northern Virginia in Central Virginia, Hampton Roads, and Southern Virginia. All told, data centers in Virginia create 43,000 jobs and $3.2 billion in wages.  

Next is The Investment Multiplier. Data center companies are on track to invest about $3 billion this year to construct new data centers and upgrade existing facilities. What’s even more impressive is that $3 billion figure represents about 70 percent of the total capital investment in Virginia! And for every $1 spent building data centers, another $5 is spent buying the computers and equipment that run in the data center. By the way, that computer equipment is replaced every 3 years or so, pumping even more dollars into the Virginia economy.

Then there is The Tax Multiplier. Data centers pay a lot in property taxes but don’t use a lot of public services. In fact, for every $1 that data centers use in public services, they pay about $8 in property taxes! This tax multiplier helps to lower our personal property taxes. According to the Mangum/NVTC report, if you live in Loudoun County and the data centers went away, your property taxes would go up by 17 percent.

One of the catalysts that sparked the growth of data centers in Virginia was some great forethought by state officials back in 2008, when they enacted a sales and use tax exemption for equipment in data centers. At the time, only five states had these incentives. Now 30 states have them. So we probably did something right.

It’s important to note that this sales tax exemption is mostly a benefit to data center customers – the companies that buy computers and equipment to run in the data center. Also, in order to get the sales tax exemption, a data center company has to make a capital investment of at least $150 million and create at least 50 new jobs at one-and-a-half times the average wage in the locality.

For example, let’s take one of the big 1 million-square-foot data center campuses in Loudoun County. It’s not out of line for that campus to require $1 billion in capital investment. Let’s assume that $5 billion of computers are purchased to run in that data center with a sales tax exemption of 5.3 percent. That’s a $265 million incentive to get $6 billion in purchases – a pretty good return.

This all adds up to one conclusion: by bringing billions of dollars of wages for our workers, revenue for our businesses, investment in our infrastructure and tax money for our neighborhoods, data centers are a crown jewel of the New Virginia Economy.

James Leach is corporate vice president of RagingWire Data Centers. He serves as chair of Northern Virginia Technology Council's Data Center and Cloud Infrastructure Committee and vice-chair of the Loudoun Economic Development Advisory Commission.