If data is the new gold, city leaders in Little Rock and Conway have grabbed their metaphorical picks and pans to join the gold rush, competing – apparently with each other – to land a $1 billion data center that’s being billed as one of the biggest economic development projects in Arkansas history.
The two cities have even offered to forgo two-thirds of the project’s property taxes for the next 30 years.
Despite the significant financial and environmental implications of this enormous project, the wrangling to land the data center is being done in secret, to the extent that Little Rock actually approved an annexation and rezoning needed for the project under a code name, Project Boar.
The absurdity wasn’t lost on Little Rock Planning Commissioner Jimmy Brown at a June hearing where the mystical data center ran into a buzzsaw of opposition: “We need to know what’s really going to happen because we have to think of the citizens of Little Rock Just tell us what’s going on, guys.”
Secrecy is, of course, antithetical to democracy. It’s also antithetical to good public policy. But it’s not at all unusual in the aggressive competitions between localities to land economic development projects, where politicians with dollar signs in their eyes ignore the fact that the primary beneficiaries are large, profitable corporations that wind up escaping taxes they could easily afford to pay.
This is corporate welfare, on an industrial scale. And cities and counties across Arkansas and the nation are rushing to play the game so they’re not left out, often discounting legitimate questions about whether this competition is necessary or wise, or if the economic benefits are large enough to justify the tax subsidies being handed out.
In late April, Little Rock city directors met in special session to approve a “memorandum of understanding” with Willowbend Capital – a firm representing a secret data center owner – to allow for construction of a 300,000-square-foot data center along the Arkansas River at the Port of Little Rock, with an investment of $1 billion that would generate 50 jobs.
Earlier in April, the Conway City Council met in special session to approve a “memorandum of understanding” with Forgelight Ventures – representing a secret data center owner – to allow for construction of (wait for it) a 300,000-square-foot data center along the Arkansas River on Lollie Road, with an investment of $1 billion that would generate 50 jobs.
Because of the secrecy, we can’t know for sure that this is the same project. But the two memoranda use similar language, and records from the secretary of state’s office show Willowbend and Forgelight were both incorporated by the same man, Michael Montfort, and share the same Little Rock address.
So it’s a good bet that Little Rock and Conway are competing with each other, and who knows how many other jurisdictions, for this project – no doubt delighting the mystery owner pulling the strings.
In their rush to win this race, both cities promised to forgo 65% of the property taxes that would be collected on the data center for 30 years, for the creation of just 50 jobs. They also agreed to extend this exemption to future expansions, a commitment that could stretch these tax breaks beyond the 2050s.
The cities would recoup some of the forgone revenue with a franchise tax on the massive amounts of electricity consumed by the data center, from which Entergy Arkansas and Conway’s city-owned utility, Conway Corporation, would also benefit. But that raises a separate set of issues about the potential impact increased electricity consumption would have on the environment.
Economic development has become a self-sustaining industry, and promoters argue that incentives given to secure projects are more than offset by the economic benefits they provide. In essence, in the case of the Little Rock and Conway data center projects, 35% of a loaf is better than no loaf at all.
But 35% of the loaf is not better than the whole loaf. This merry-go-round is based on the premise that incentives are the primary driver of facility location decisions, and localities that don’t offer them will miss out. But researchers who looked at the data found that 75% of the time, the company would have made the same decision without the incentives.
Factors such as location, real estate prices, and availability of workforce and infrastructure are more important drivers of these decisions. None of those factors are fixed by incentives, but they can be improved long term to make a community more competitive.
If Little Rock or Conway have the attributes the data center owner is looking for, the tax breaks could turn out to be an unnecessary giveaway; if they don’t, the tax breaks won’t do any good.
Companies that have already decided where to locate a facility also have a perverse incentive to create an artificial competition to extract more concessions from the locality they have already picked. And the secrecy they demand makes this impossible to detect.
There is also a question about whether, in the long term, the economic benefits generated by these new facilities outweigh the costs of the services they require and the incentives handed out to lure them. Researchers who have crunched the data have concluded they don’t, in part because companies awarded incentives frequently don’t follow through with the promises they made.
When Little Rock planning commissioners pushed for more details on the impact the data center might have on city finances, they were assured that even with the property tax abatement, the project would generate “millions” of dollars in taxes.
But when they pressed for details on the costs the city might incur for infrastructure and services needed for the data center, officials involved in the recruitment effort said those details weren’t available for a project that’s still theoretical – a catch 22 that frustrated commissioners and demonstrates why public entities negotiating deals in secret is so problematic.
“Give us the information and the data that we need to make an informed decision, not a ‘oh, well, you know, maybe one day somebody might do something cool here.’ That’s not what this should be,” Commissioner Jeremiah Russell said.
Because this mystery company demanded its identity be kept hidden, meaningful public input on the data center project is impossible unless and until a deal has been reached and unveiled by politicians, who will no doubt gush about all the jobs and economic largesse they’ve created.
At that point, how likely is it that those same politicians will willingly reverse course if the public raises legitimate concerns about the wisdom of the project or the fairness of the deal?
Economic development and recruiting new businesses to strengthen the economy are legitimate undertakings for local governments. The question, though, is whether that really requires negotiating tax breaks in secret and binding a jurisdiction to a corporate welfare scheme that stretches beyond the lifetimes of everyone involved. Or opening up the candy store to compete for these projects just because everyone else is.
It’s worth remembering that prospectors who rushed into the goldfields in haste often wound up with more regrets than gold.
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