In one of his earliest actions as Washington’s new governor, Bob Ferguson on Tuesday signed an executive order forming a team to evaluate the impact of data centers on energy use, state tax revenue and job creation.
The order follows a Seattle Times and ProPublica investigation last year into the clean-energy and economic impacts of the state’s power-guzzling data center industry, the backbone of the modern internet. Data centers — warehouselike structures filled with computer servers — receive some of Washington’s largest corporate tax breaks. They require enormous amounts of electricity, a need that is only expected to grow with increasing reliance on artificial intelligence.
“We must ensure Washington remains a leader in technology and sustainability — these experts will help us do that,” Ferguson said in a news release. “This group will help us balance industry growth, tax revenue needs, energy constraints and sustainability.”
Ferguson’s order authorizes a work group of state officials and industry stakeholders to study the impact of data centers and recommend policies that balance industry growth with tax revenue needs, energy constraints and sustainability, according to the executive order. That includes evaluating the state’s robust tax incentives for the data center industry, according to the governor’s office.
Read the investigation:
Power Hungry
More
State lawmakers encouraged the dramatic growth of the data center industry by offering lucrative tax breaks in the name of bringing jobs to rural areas. The Times and ProPublica reported last year that data centers have grown into a major consumer of electricity in some of Washington’s greenest counties, threatening the region’s ability to meet power demand while phasing out fossil fuels.
Then-Gov. Jay Inslee blocked efforts to study data center electricity use in 2022, the news organizations reported. State lawmakers included a provision to measure how much power data centers use in a bill that expanded tax breaks for the industry. Inslee signed into law the tax break expansion but vetoed the study.
Inslee’s office said last year that the study would have duplicated work underway by regional power planners, who have produced wide-ranging forecasts about data centers’ power use in the Pacific Northwest. Still, no agency or entity has assessed the industry’s growing energy demands in Washington specifically or the impact of the state’s tax break on its power grid.
As of July, Washington was home to at least 87 data centers, according to the industry tracking website Baxtel.
Ferguson’s work group will be led by the Department of Revenue, the state agency responsible for determining the eligibility of data centers for tax breaks.
The data center industry impacts a broad cross-section of Washington’s economy, with policies having the potential to affect job creation and utility decisions, among other sectors.
Ferguson’s team will include stakeholders from state agencies responsible for tax incentives, clean energy goals, the environment and utility regulation, as well as private representatives from labor organizations and the data center industry.
The group is tasked with producing findings and recommendations by December, according to the governor’s office.
Major tax break recipients
Ferguson’s order to study data centers comes as the state faces a budget deficit of at least $10 billion. Ferguson has said he will look for ways to cut spending before raising new taxes.
The corporate tax breaks Washington awarded to data center companies in 2023 surpassed all of the state’s aerospace subsidies, including Boeing’s, The Times and ProPublica reported last year. Because of these incentives, data center companies have saved more than $474 million in taxes from 2018 through 2023.
More than 65% of those savings have gone to Microsoft, which reported net earnings of $72.4 billion in 2023, the news organizations found. Microsoft told the news organizations last summer that it employed 417 people in its Washington data centers.
Washington lawmakers first successfully introduced tax breaks for data centers in 2010, arguing that they would keep companies from leaving the state and create a wave of high-paying tech jobs in rural areas.
Since then, supporters of the tax breaks have pointed to what they say are successes resulting from the incentive program: a significant increase in property tax revenue in rural counties, as well as the continued employment of thousands of construction workers and electricians in the state who build and maintain these facilities.
“I’m going to be advocating for data centers,” Rep. Alex Ybarra, a Republican from Quincy, told constituents in a video posted to his website last month speculating about an expected executive order.
Ybarra’s district includes Grant County, an agricultural region with abundant clean energy from two Columbia River hydropower dams capable of powering more than 1.5 million homes. Grant County is home to some of the cheapest electricity in the nation, a draw for the growing data center industry.
In 2022, data centers in Grant County accounted for nearly 40% of total electricity demand, or about as much as 190,000 U.S. homes, according to utility and state data. Since arriving in the county in the mid-2000s, the data center industry has grown to consume more electricity than any other category of ratepayer, including other industrial customers, residents and commercial businesses.
As Grant County’s demand for electricity grew, its public utility district increasingly relied on “unspecified” energy sources that came from the open energy market, where utilities buy available power from a mix of fuels. The sources tend to be carbon-emitting fuels like natural gas, experts say.
The reliance on carbon-emitting power sources conflicts with Washington’s goal of phasing out fossil fuels. In 2019, the Legislature passed a measure to make Washington’s utilities carbon neutral by 2030.
“You’ve got a dilemma of how you’ll meet this additional load from data centers with clean resources or, frankly, with any resources,” Randall Hardy, an energy consultant, told The Times and ProPublica last year.
Obscured job figures
Ferguson’s office said the work group will review data on job creation in the industry — a key measure for understanding the success of Washington’s tax incentive program, which has been shielded from transparency and accountability for years.
State revenue officials aren’t allowed to say how many high-paying tech jobs have been created by individual data centers receiving large tax breaks, The Times and ProPublica reported. As a result, it’s unclear how many high-paying tech jobs the tax break has created.
Washington lawmakers have twice rejected transparency proposals to make some of this information available to the public.
Data centers employ relatively few full-time workers compared to other industries with large energy footprints, such as food processing. State lawmakers have tweaked, updated and extended the tax breaks since they were introduced in 2010. All the while, they have loosened the incentive’s job-creation requirements and rejected efforts to require more hiring by companies that want to take advantage of the incentive.
Lawmakers also moved away from the original premise of the data center tax break — hiring in rural areas — to pass a new tax break for data centers in urban areas in 2022.
The state’s tax watchdogs, the Joint Legislative Audit and Review Committee and the Citizen Commission for Performance Measurement of Tax Preferences, have conducted only one review in the nearly 15-year run of the data center tax break program to see if the incentive was meeting its intent around jobs.
That single review in 2017 determined that it was “too early to tell” whether the tax break recipients were meeting their hiring requirements.
