ALBUQUERQUE, N.M. — Facebook has arrived, and Shelly Marsh knows it because her customers keep trying to pay for their hashbrowns, biscuits and sourdough pancakes with American Express credit cards.
“We don’t take American Express because the fees are too high,” said Marsh, co-owner of the popular diner Dad’s Place in Prineville, Ore. “But that’s what they use at Facebook. They keep asking us, ‘When are you going to take AmEx?’ We’ve been here 26 years, we’re not going to change anything.”
Prineville, on the other hand, has changed quite a bit since Facebook began building its first fully owned data center there in 2010, a project that continues to bring a steady stream of construction workers as the campus expands. This timber town with a population of 9,500, once one of the most impoverished communities in Oregon, now boasts a new hospital, an elementary school and is in the process of creating a 500-acre nature preserve. The traffic is worse and there’s a housing crunch so severe that some construction workers are staying in hotels for months at a time, but local officials say it’s a small price to pay for joining the “Silicon Forest.” Furthermore, Facebook has attracted another marquee brand to Prineville: Apple, which broke ground on its own data center in 2012.
Marsh said her restaurant has become busier since the arrival of Facebook, though not enough to merit hiring additional employees. Generally, she said, the presence of the social media giant has been a boon for both Dad’s Place and Prineville.
“We’re going through some growing pains, but overall Facebook has been a super good neighbor,” said Marsh.
Take this city’s trees and replace them with tumbleweeds, exchange snowy winters for dust storms in May. If one squints at the landscape in Prineville, is it possible to see Los Lunas? If so, what can New Mexico reasonably expect in terms of economic impact from the data center? Will it be worth the $30 billion in industrial revenue bonds that provide a 30-year property tax break, $10 million Local Economic Development Act funding, up to $1.6 million in gross receipts tax reimbursement annually and access to the $3 million Job Incentive Training Program promised to the company?
With Facebook scheduled to break ground in Los Lunas on its newest data center tomorrow, it won’t be long before the state finds out.
Beyond data center jobs
Thirty to 50 jobs. That was the primary complaint of those New Mexicans who opposed the Los Lunas data center: that the number of projected jobs provided by the data center in the project’s early phases didn’t warrant such a rich incentive package for a $350 billion company. While the opposition was relatively quiet in this state, in Utah – the other location Facebook considered for the data center – it was loud enough to kill any potential deal altogether.
Proponents in both states, however, were adamant that the value of the project lay not in the data center jobs themselves, or even the 300 to 500 construction jobs promised over seven years, but rather the status that comes with being associated with a celebrated company like Facebook.
Gary Tonjes, president of Albuquerque Economic Development, which acted as a project manager for the state during the Facebook courting process, said he began seeing the fruits of that status the day the company announced it had chosen Los Lunas.
“We received emails and calls throughout the day from businesses and site selection consultants, and several of those are now a little bit more than casual engagements,” said Tonjes. “The general message was, ‘If Facebook is going there, we want to be there, too.’ It’s really going to be significant.”
Then there are what Facebook calls the indirect and induced impacts of its seven data centers located around the world: an increase in grocery sales as a result of more spending money in the community, for example, as well as the additional investments a grocery store might make as a result of that sales spike. In a report Facebook commissioned on the Prineville data center, the total economic impact of the center on Oregon was estimated to be $65 million in 2013, including 266 jobs. A similar study, also commissioned by Facebook, on the company’s Forest City, N.C., data center showed that, between 2011 and 2013, the data center there generated a total gross economic impact of $707 million and supported 5,000 jobs across the state.
In part because of the infrastructure they create – in the case of Los Lunas, Facebook will be bringing a high-voltage electric line and several solar power facilities, and is “evaluating fiber needs current and future” – there is a tendency to attract other data centers, creating data center “hubs. In Prineville’s case, Facebook’s data center attracted the attention of Apple, creating an unlikely partnership between two companies that have historically been at each other’s throats. A Facebook spokesman said the company went as far as to allow Apple employees to tour its Prineville data center and shared with it the designs for the data center.
The mayor of Prineville, Betty Roppe, said she has had no regrets about offering Facebook a 15-year property tax break in return for its investment. She said she explained this to representatives of Salt Lake County, Utah, who contacted her after Facebook began exploring the possibility of a data center there, but felt they were not receptive.
“New Mexico is the beneficiary of Salt Lake County’s mistake,” said Roppe.
Not everyone is convinced Utah made a mistake.
Dave Swenson, an economist at Iowa State University, has been a vocal opponent of tax incentives for data centers. He called data centers “big, hot boxes that sit out in the middle of nowhere” that do little to expand the technology sector in the states where they are located.
“These are large-scale operations that employ medium-skilled workers and not very many of them,” said Swenson. “It’s not going to create some kind of special, technical relationship with the economy. It doesn’t tap into a state’s economy with critical inputs or provide a service or product that is critical to the state. The justification just isn’t there.”
He said that what happened in Los Lunas’ case follows a pattern that has become increasingly common nationwide, in which a major tech company pits two states against one another to increase the competitiveness of the tax incentives.
“There’s nothing special about New Mexico,” said Swenson. “These things are going up across the United States in any mid-size metropolitan area with reasonable access to an airport, any place where the public is ignorant enough or the local governments are willing to act unwisely on their behalf.”
Paul Gessing, president of the Albuquerque-based think tank Rio Grande Foundation, was more moderate in his criticism of the Facebook deal, but said that, while he hoped the data center would bring long-term economic benefits to the state, he has doubts that any boosts would last beyond the construction boom.
“During the construction phase, that’s when it’s going to seem like something’s really happening,” Gessing said. “But once that’s over, that’s when the challenges are likely to be encountered, like the real impact on employment (in Los Lunas).”
Swenson said that is exactly the issue: The construction industry in New Mexico will likely experience a “multiplier effect” but, once the workers pack up their toolboxes, he said, the tax incentives aren’t buying much more than “power and water (for the data center) and about 50 jobs.”
“Economics can’t explain what you’re doing,” said Swenson. “It’s simply politics.”
Facebook said in a statement that the economic impact of its data centers extends far beyond construction activities and that the company’s commitment to a community doesn’t end when construction is complete.
“Employees will continue to volunteer in the community, shop, and live locally,” the company wrote in an email. “Employees from all over the globe will always be in and out of the area, contributing to the economy.”
Staying the course
Joell Torres-Himeur is hopeful that the project will bring more business to Teofilo’s, which she co-owns with several members of her family, as well as Luna Mansion, a steakhouse that she also co-owns. But when asked whether she anticipates making any adjustments to her operations as a result of Facebook’s presence, Torres is skeptical. Little is different from when her family began operating their business 31 years ago, said Torres, although, at some point, their restaurants started accepting American Express.
“It’s hard to imagine things changing very much,” she said. “But you never know.”