A plan to add a tax incentive to lure huge computing facilities known as data centers to Illinois could be a big win for the state.
Illinois already is home to the third-largest network of data centers in the country, but almost all of them are located in Chicago and the suburbs around O’Hare Airport.
The rest of Illinois has drawn little of this business. Projects instead have been located in places like Waukee, Iowa, where Apple plans to invest $800 million in a data center project. The company received $208 million in tax incentives to build there.
There will be more to come, not just from other companies, but from Apple, too: The company says it plans to spend $10 billion on U.S. data center construction over the next five years. That makes sense: As the internet has become more a part of people’s daily lives, the amount of data generated daily has seen explosive growth. Companies of virtually every type now depend on information about their customers to guide business decisions.
To do that, they need someplace to store it all. In response to this exploding demand, huge buildings storing massive computer servers have sprung up around the country, including in the Chicago area.
Many other Illinois communities would make ideal locations for such centers. DeKalb County, for example, has available space, ample supplies of water and electricity, and high-speed fiber optic infrastructure, all of which data centers need to operate huge banks of servers and cooling units.
However, neighboring states have been able to edge out Illinois, in part by offering generous tax incentives.
A provision included in the new $45 billion capital plan provides a similar incentive for companies considering Illinois. It offers a 20-year sales-tax exemption on materials including computer servers and climate-control materials, provided a company invests at least $250 million over five years and creates at least 20 full-time equivalent jobs paying at least 20% more than the median wage in the county.
The incentive program also includes an 20% income tax break if a company builds in a community deemed underserved or impoverished.
The incentives do not affect the local property tax that local governments would collect from the large-scale improvements that could be made.
This data center incentive plan was a key lobbying point for the Illinois Chamber of Commerce and was included in the budget plan at the behest of Republican legislators, with the blessing of Gov. J.B. Pritzker.
Other states have succeeded in spreading the wealth through these incentive programs. The Illinois Chamber of Commerce commissioned a report in 2018 that showed that Virginia – the nation’s top data center market – succeeded in landing data-center projects outside the concentration area near Washington, D.C. through the use of tax incentives.
We could see a similar outcome for Illinois, where technology is available and companies already are familiar with the situation on the ground. The incentive program will sunset in 10 years, at which time it can be reviewed and, if working as expected, renewed.
If it works as intended, the incentives could be key to creating jobs and building property values in communities that until now have missed out. It also could be key to reusing large structures that are now vacant.
In a state where debates often are framed as Chicago vs. everyone else, it’s good to see a provision in the budget that could help encourage development opportunities statewide.