Data Centers and Texas Part I: An Extraordinary Friendship

October 24, 2019 by Midlothian Economic Development

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Long before Google announced the construction of its first data center in North Texas, the Lone Star State served as a hub for data centers and continually attracted a steady flow of demand. However, in the past few years, data center growth in the state has exceeded expectations. 

There are many factors that have gone into the recent big — data — explosion across Texas, but no one presents the answer better than former Texas Gov. and current Secretary of Energy Rick Perry when he said, “low taxes, predictable regulations, fair legal system, and skilled workforce” are a few of the reasons data centers locate or expand their operations in Texas. 

Below, we unpack and explore some of the biggest reasons why new data centers are riding out to Texas over other top tech states:

Low Power Costs

This year, the first edition of the USA Data Center Price Tracker report was released, which analyzed the 10 major data center markets in the country based on pricing, space, and power. The report found that Texas — specifically Dallas and Houston — had the lowest average utility electricity rates. This means that both electricity-wise, operating a data center in Texas is less expensive than California, Virginia, Massachusetts, Illinois, New Jersey, and New York.

This is mainly due to the Electric Reliability Council of Texas, which manages the state’s electric capacity, provides reliable and robust power delivery for data centers, and is one of the main reasons power costs are so low throughout the state. 

Tax Incentives

Over the past few years, on both the state and local levels, Texas has implemented a variety of tax incentives for data centers that are too financially advantageous to miss out on. 

The most important of these incentives are the significant sales tax breaks for qualifying data centers. These tax breaks can go as far as completely exempting data centers from any sales tax. As well, in the scenario where a data center does not meet the qualifications, agreements limiting the appraised value of the data center’s property under Tax Code Chapter 313 exist to provide a strong secondary layer of tax savings for data centers. Both of these legislations are considerable being that other top states for data centers including California, Georgia, Illinois, and New Jersey do not offer any tax incentives for data centers. Additionally, the ones that do, such as Arizona and Washington, cap it at equipment. 

Plus, Texas openly plans to continue incorporating even more data center tax incentives in the upcoming years. 

Skilled Workforce

Highly trained and knowledgeable individuals are the backbone of all data centers, and Texas is home to many. The Lone Star State has the second-largest civilian workforce in America — 14 million industrious and skilled workers to be exact. This makes Texas an easy choice for new data centers, as there is an undeniable advantage to building a facility in a place surrounded by the exact talent that’s in demand. 

Moreover, no time, money, or effort is wasted on recruiting the right fit. Creating a steady supply and constantly feeding this strong workforce is the 37 public universities and upper-division centers across the state as well as Texas’s premier job-training program, the Skills Development Fund.

Texas Enterprise Fund

The Texas Enterprise Fund (TEF) is a successful business incentive that awards substantial grants to companies who choose to station their new project in Texas over other sites in competing states. Known as the “deal-closing fund,” it is the largest in the United States. The TEF is a major financial incentive for companies whose projects would contribute significantly to the state’s economy through capital investment and new employment opportunities — data centers being at the top of that list. 

In Texas, local jurisdictions are given a lot of autonomy to offer lucrative economic incentives to new data centers. The TEF can maximize on those offers due to its ability to complement these incentives and support the new business even further. 

The TEF is an amazing deal that other top tech industry states are not offering, setting Texas apart from the rest — or more so, above.

For Years to Come

As data centers continue to explode Texas’s economy, bringing in significant capital and providing a plethora of employment opportunities, the state has no plans to stop offering more reasons for data centers to settle. It is safe to assume we can expect companies to continue seeking out Texas as the site for their data centers.

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