Michigan’s data center tax breaks: Will lawmakers succeed in repealing them?

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This story was originally published by Bridge Michigan, a nonprofit and nonpartisan news organization. To get regular coverage from Bridge Michigan, sign up for a free Bridge Michigan newsletter here.

As a wave of data center developers further their plans to set up shop in Michigan, two bipartisan Michigan lawmakers want to repeal the tax breaks that are luring them.

State Rep. Jim DeSana, R-Carleton, announced Tuesday during an anti-data center rally at the Capitol that he and Rep. Dylan Wegela, D-Garden City, are sponsoring a three-bill package to overturn the sales and use tax exemptions that lawmakers narrowly approved last session in hopes of enticing tech companies to build massive “hyperscale” data centers in Michigan.

Since then, no fewer than 14 hyperscale proposals have cropped up from west Michigan to metro Detroit, prompting cheers from business leaders and outcry from residents who worry the massive, energy-hungry facilities will despoil communities and strain the power grid.

“I’d like to think that some people are having second thoughts” about their vote to approve the tax breaks, said DeSana.

Still, he predicted the repeal effort would face an uphill battle in the Legislature, given the massive lobbying power of monopoly utilities that stand to ink profitable energy contracts with data center developers.

But DeSana noted that mounting public opposition to the facilities could change political dynamics. Thousands of people have filed public comments opposing Michigan’s first major hyperscale data center proposal in Washtenaw County’s Saline Township, and dozens turned out on the Capitol lawn Tuesday to call for a statewide moratorium on data center development.

Protestors chanted “no secret deals” in objection to DTE Energy’s quest to gain state approval of a 19-year power contract for the Saline Township development without publicly disclosing full terms of the contract.

A DTE spokesperson said that company still was reviewing the proposed tax break elimination and couldn’t comment.

Consumers Energy spokesperson Katie Carey said the utility is “committed to providing reliable, affordable energy that makes growth possible – helping our communities thrive today and for generations to come. Repealing this policy will put Michigan further behind other states and hinder our ability to support Michigan’s economy and long-term growth.”

On farmland in the community south of Ann Arbor, tech giants OpenAI, Oracle and Related Digital plan to build a $7 billion, 1.4-gigawatt Stargate facility that Gov. Gretchen Whitmer has hailed as “the largest economic project in Michigan history.”

Other developers far along in the planning process for proposed data centers include Microsoft, which last year purchased two separate plots of industrially zoned land in Kent and Allegan counties, and a Google-connected developer that has received approval to build a six-building facility in Oakland County’s Lyon Township.

The state’s largest utilities, DTE and Consumers Energy, have told investors that, in addition to the Saline Township proposal, they are in late-stage talks with data center developers looking to secure a total of 5 gigawatts of power capacity. That amounts to between four and six average-sized hyperscale facilities. If all come to fruition, Michigan’s peak energy demand could surge 39%.

But for seemingly every newly announced proposal recently, a proposed project has been cancelled or postponed as local communities fight the massive developments.

Opponents fear lost farmland and destroyed habitat, noise pollution from thousands of humming servers, strain on the electric grid and higher bills as utilities spend mightily on infrastructure to power the facilities, and strain on rivers and aquifers amid data centers’ use of water to cool servers.

“Our resources are at risk,” said Kathryn Haushalter, who lives next to the property slated for the Stargate facility. Rather than selling too, she promised to “stay and fight” the development.

In Howell Township, public outcry and a newly passed moratorium on data centers prompted developers to withdraw a proposal to rezone farmland for a $1 billion facility. Project backers said in a Facebook post they wanted to “give the Township and its residents the time needed to develop thoughtful, well-considered regulations for any future data centers.”

Proposals in Kalkaska and in Monroe County’s Dundee Township were similarly shelved amid public pushback.

The churn of announcements and cancellations also points to the speculative nature of the data center business. Developers often pitch their plans in multiple communities, but only move forward in the community that presents the quickest pathway to approval, said Douglas Jester, managing partner at the energy consulting firm 5 Lakes Energy.

“It’s very clear that data centers are shopping for locations,” Jester said Tuesday during a forum hosted by the Michigan State University Institute for Public Policy & Social Research.

As opposition to the facilities mounts, several local governments have placed preemptive moratoriums on data center development, aiming to give local leaders time to craft regulations dictating where and how the industry can set up shop.

Beyond tax breaks, Michigan’s climate, abundant water and excess capacity on its utility grid make the state appealing to data center developers, said Dong Zhao, a Michigan State University associate professor of construction management and civil engineering who spoke during Tuesday’s forum. 

“We have energy and we have water and we have the cold weather,” which can help dissipate the heat generated by running thousands of computers 24/7, he said.

Data center advocates argue the industry can bring needed benefits to Michigan, such as new revenue to help cover the costs of poles, wires and pipes that deliver electricity and water. Many communities are struggling to maintain their utility infrastructure after decades of industrial decline left systems overbuilt and underfunded.

Officials in the Benton Harbor area, for instance, have said they hope to lure a data center to bolster the customer base of a water system that struggles to cover basic maintenance after the closure of large factories that once helped pay the bills.

Officials in Augusta Township, likewise, say they have plenty of water to supply a proposed data center because the water system was built to provide millions of gallons a day to a since-closed General Motors plant.

If contracts are structured appropriately, data center developments can bring similar benefits to electricity customers, said Lucas Fykes, energy policy director for the Data Center Coalition, an industry lobbying group.

“As you add on large-load customers, you’re able to spread out those fixed costs,” Fykes said. “It puts downward pressure on rates for all the other residential customers.”

The Saline Township proposal

Utility regulators on the Michigan Public Service Commission could decide within days whether to approve power contracts for the Saline Township data center.

DTE Energy is seeking ex parte approval of a 19-year deal to supply power to the facility.

Utility officials contend that the data center will pay for more than its fair share of utility costs, resulting in $300 million in annual savings for other customers. They have urged commissioners to swiftly approve the contracts, warning that their agreement with project developers includes the option for the developers to terminate the project if power isn’t secured by Dec. 19.

The commission’s next meeting is Thursday, Dec. 18.

“Our discussions with the developer and customer have indicated they need to start construction at the beginning of the year to move forward with the project site,” DTE spokesperson Jill Wilmot told Bridge Michigan last month.

Ratepayer advocacy groups, environmentalists and Michigan Attorney General Dana Nessel have urged commissioners to instead open up a so-called contested case, a lengthy review process that would allow deeper public scrutiny of the proposed deal. They contend the publicly available version of DTE’s application is so heavily redacted, it’s impossible to know whether it’s a good deal for ratepayers. 

Holding up an oversized version of the blacked-out document during Tuesday’s protest, Nessel asked the crowd, “Does that seem transparent to you?

“We’re not asking the Public Service Commission just to completely destroy this project,” Nessel said. “We just want to know … what the hell is going on and what that will mean for the people of our state.”

In addition to the utility contract, developers need permits from the Michigan Department of Environment, Great Lakes and Energy to install diesel-powered backup generators and begin construction activities that would impact wetlands and the Saline River.

Data center opponents are mobilizing to fight the wetlands request, citing “red flags,” including potential harm to endangered species, destruction of wetlands and what they say is insufficient proof that the data center’s stormwater discharge won’t pollute the Saline River. 

“EGLE and EPA staff are under undue influence from state and federal administrations to approve these permits quickly, without proper due diligence, and without regard for proper regulatory compliance,” states a release from the Economic Development Responsibility Alliance of Michigan. 

State environmental regulators have said there’s no firm timeline for when they will decide whether to grant the environmental permits, but the process could take several months.

This article first appeared on Bridge Michigan and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.