Data Center Boom Poses Budget Risk

While Loudoun’s booming data center industry has buoyed local tax revenues as other sources of county funding sink, the surging growth of the industry could also pose a risk if Loudoun’s budget becomes too dependent on it.

That was the warning county budget staff members gave supervisors at the board’s finance committee meeting Oct. 13, where they said Loudoun’s data center industry has seen unprecedented growth, adding 6.4 million square feet of space in 2019, where before it averaged around a million square feet a year. In the Fiscal Year 2020 budget, which does not reflect all of that growth, the computer equipment tax brought in $320 million. That boom continues as COVID-19 pandemic-era precautions have many more people working from home, video conferencing, or just staying at home watching video streaming services.

And based on even conservative trends of the industry’s growth, revenue from taxes on those data centers could eclipse the real estate tax as the county government’s largest source of income in the middle of this decade—something that may be unprecedented for a Virginia locality, said Assistant Director of Management and Budget Caleb Weitz.

“Most if not all other jurisdictions in Virginia, real property is the main source of revenue,” Weitz said. “So, we are potentially going to be in a position that the county’s largest revenue source is a revenue source that, while we have a very large and fast-growing industry right now, is subject to more future volatility.”

Loudoun today is the largest data center market in the nation, with companies clamoring to join Ashburn’s data center alley or expand their footprint. But because the equipment inside data centers is refreshed every few years, economic development officials have warned, data centers could theoretically pick up and leave in relatively short order.

“When this revenue source, a single line item, becomes such a huge component of the revenue side of our budget … if that single sector or that single industry starts to have economic difficulty, or the next new scientific achievement happens which means the way data centers work as we understand them now becomes an outdated model for providing this service, then that really then creates what could be a huge budget problem very quickly,” said County Administrator Tim Hemstreet.

A chart of projected computer equipment and real estate tax revenues. [Loudoun County]

“We couldn’t have predicted that we’d be in the position that we’re in today a decade ago,” agreed finance committee Chairman Matthew F. Letourneau (R-Dulles). “And so I’m hesitant to predict ten years from now, and be confident in saying that this revenue source is going to continue to grow at this level.”

But supervisors made no immediate recommendation other than to keep an eye on it for now. One option, cutting the $4.20 per $100 of value tax on computer equipment for data centers—Loudoun’s tax rate is higher than other localities seeking to attract some of the industry—could come with some blowback.

“I don’t think it’s going to fly for us to essentially be giving the major corporations that make up the data center industry a tax cut on this rate and not do something for the citizens,” Letourneau predicted.

It also illustrates the sway a handful of companies now have on Loudoun’s budget picture—Weitz said just a few of the major operators delaying bringing equipment online by a few months could have significant impacts on budget forecasts.

The county budget staff and supervisors last year took some first steps to insulate their budget against any possible volatility on the data center business, diverting some of that money to one-time expenses so that county operations won’t be affected by a small dip. That also came as the county budget office has worked each year to refine its tax revenue projections in an industry that each year defies expectations in growth.

“We’ve got to be the only county in Virginia to have a discussion about a concern on a revenue source that’s exploding into essentially 25% of our budget in potentially six to 10 years,” Letourneau said.

3 thoughts on “Data Center Boom Poses Budget Risk

  • 2020-10-21 at 4:10 pm
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    Phyllis and company will continue to spend and raise taxes for the homeowners even though the average tax payer could benefit from a tax reduction.

  • 2020-10-21 at 7:36 pm
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    The human race learned not to “put all the eggs in one basket” probably right after we went hungry the day after the very first egg basket was dropped.

    Counties in southern Virginia showed us the pitfalls of the approach a couple decades ago when they went all-in on mega landfills.

    Data centers are no different.

  • 2020-10-22 at 6:11 am
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    Loudoun property tax rate is already 39% higher than the average in Virginia – LOWER THE TAX RATE FOR HOME OWNERS! Second, fix the commercial property tax system so the actual market value is used just like it is done for homeowners. Large properties already in discussions and tests to be subdivided are almost always under-assessed as is HHMI and the Greenway, golf courses and trailer parks.
    Third, Stop throwing money at LCP without taking the time to honestly evaluate programs and systems. Every department of LCPS doesn’t need its own IT staff, most buses aren’t running now so it should be obvious the diesel budget is too high. The cafeteria of almost every school has been dormant but the BOS is still accepting of ALL of the $1.4 billion budget. WAKE UP and run the county efficiently! 🙂

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