Loudoun Budget Office Hedges Bet on Data Center Taxes

Loudoun County Director of Management and Budget Erin McLellan has recommended the county direct some of the tax revenues from data centers into county and school renovation projects, insulating the government from fluctuations in an industry that finance officers are trying to better understand.

Property tax revenues from the computer equipment inside data centers form a major leg of the county budget, this year expected to put more than $200 million into local coffers. In the previous fiscal year, county budget officers conservatively estimated the industry would put bring the county $154.9 million in business computer equipment tax. But while budget staff members typically anticipate bringing in slightly more revenue than budgeted, the county collected $195.2 million in that tax, more than $40 million more than projected.

McLellan first warned supervisors in December that, while it’s a good problem to have, it means the county is not making the most of that revenue, and more importantly that the county does not have a good handle on the industry or what to expect from it. To that end, the county government has been working to better understand the industry and what to expect from it from a tax standpoint.

“We wanted to understand that industry a little bit better before we got any more aggressive with our revenue projections,” McLellan told county supervisors Jan. 2. “We think we do have a little bit better understanding. We’ve really examined the trend lines and so we are being a little more aggressive with our revenue projections.”

Also in December, she alerted supervisors that as the construction from the early years of the county government’s building boom ages, renovations on those facilities—now two or three decodes old—will start to take up a larger chunk of the county’s capital budget.

So this year, county budget staff has proposed earmarking some that data center revenue for renovations. McLellan said, “We don’t want to get too operationally dependent on that revenue source, which is from one single industry.”

“The reason we are proposing not using that additional revenue in the operating budget, but rather putting in in the capital fund, is so that, should there be any changes in that revenue source—should we see a plateau or even a dip in that revenue—we have a great ability to adjust without affecting our operations,” McLellan said. “With a renovation, it could be delayed, projects could be stopped, phased out, ramped down, so we think we could adjust a lot easier using that revenue there.”

If that proposal is to become policy, supervisors will need to adopt it as part of their next county budget.

rgreene@loudounnow.com

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