The Michigan House passed one of two data center tax breaks on Wednesday over advocates’ concerns that the incentives could derail the state’s climate goal and increase residential utility costs.

The House passed Senate Bill 237 by a vote of 56 to 41. This bill exempts large data centers operated by companies like Google and Microsoft from use taxes on equipment through at least 2050, with a sunset of 2065 for data centers built on brownfields. This bill will now be sent back to the Senate.

A companion bill, HB 4906, which provides data centers with sales tax exemptions, was pulled from voting after twice failing to garner enough votes.

State Rep. Joey Andrews (D-Saint Joseph), primary sponsor for the second bill, said he plans to bring it back during the “lame duck” session following the general election.

The House vote could attract more large data facilities to Michigan, which environmental advocates say threatens the state’s 2023 renewable energy legislation. The legislation sets a goal of achieving 100% renewable generation by 2040, but it contains an “offramp” provision that allows coal or gas plants to stay online if there’s inadequate generation to meet demand.  

Data centers could also impact the state’s water resources by using millions of gallons of groundwater per day to cool servers, potentially increasing rates for residential customers if utilities need to build out new infrastructure to serve the facilities.

Chris Hill, policy associate with the Michigan Environmental Justice Coalition, told Planet Detroit that passing the tax breaks “completely undermines” the state’s renewable energy legislation. He pointed out that data centers in other states have kept coal generation online, led to proposals for new gas plants and required dirty diesel generators for backup power. It was recently announced that Three Mile Island, site of the worst commercial nuclear accident in U.S. history, will reopen to supply power for Microsoft data centers.

“It’s just a complete retrogression on a bunch of states’ climate goals,” Hill said of impacts from data centers.

However, Andrews has said the legislation could be transformational for his district, which includes Benton Harbor. The district could see an estimated $21 million in annual property taxes.

In an email shared with Planet Detroit, Andrews replied to a letter from the Environmental Justice Caucus, signed by groups like MEJC and the Ecology Center, where he accused them of being “fanatical” for trying to block developments that could bring jobs and investment to a majority Black community.

“I leave it to your therapists to deal with your collective narcissism,” he wrote.

Hill said he had, “never seen a Democrat address a part of the broader (Democratic) coalition like that in an official correspondence.” 

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Michigan data center legislation: tax breaks and job creation concerns

The Senate bill contains amendments requiring data centers to draw from municipal water systems and preventing residential energy customers from subsidizing lower energy rates for data centers. However, advocates have said these measures are not enough to protect groundwater resources and ratepayers.

Charlotte Jameson, chief policy officer for the Michigan Environmental Council, previously told Planet Detroit that the amendments weren’t “fine-tuned enough.” She said that the costs of providing power to data centers could still be put on residential customers and that large water systems might cut their own deals with data centers, leaving others to pay more.

Data centers using water to cool servers could also impact groundwater if municipal systems that draw on groundwater use significantly more.

An individual data center can use as much as 5 million gallons of water a day for cooling. This is far more than water bottling operations like the proposed Nestle facility in Evart, Michigan, which would draw roughly half a million gallons a day. Environmentalists have warned that Nestle’s large extractions could cause creeks in the area to dry up.

Michigan taxpayers will also pay for data centers taking advantage of the tax breaks, although individual communities may benefit from the property taxes. A Senate Fiscal Agency analysis that looked at both bills estimated the tax breaks would reduce state and local tax revenue by more than $90 million by 2065.

In exchange for these tax breaks, Michigan may see few jobs. For example, the Switch Inc. data center near Grand Rapids received tax breaks in 2015 after promising to create 1,000 jobs in 10 years. But by 2022 the company had only hired 26.

Frustration with data centers’ preferential energy rates, climate impacts and poor return on investment has led lawmakers in South Carolina, Georgia and Connecticut to rethink their tax breaks.

South Carolina State Rep. Shane Massey (R-Edgefield) said data centers were “electricity hogs that aren’t really providing a whole lot of jobs.”

Yet, even without tax breaks, operators like Switch and Ault Alliance are expanding data centers in Michigan.

Sean McBrearty, Michigan director for the nonprofit Clean Water Action, said the state needs to move urgently to put environmental guardrails in place for these facilities.  

“Data centers are something that we’re going to be dealing with for a long time,” he said “Michigan has to act quickly to learn how to responsibly regulate data centers to protect our water and our energy goals.