Smaller than expected data center revenues have set county staff members trying to figure out what happened to an expected COVID-era tax revenue windfall, and trimmed some of the safety margin from the county budget.
Data centers were expected to be a rare bright spot for the Loudoun government’s finances in 2020, as most commercial property values slumped. Loudoun’s data center industry charted a 50 percent increase in square footage during 2019, adding an estimated 6.4 million square feet of space. And in 2020, with tele-work, streaming and other internet services become more important than ever before, data center companies were buying up even more land and expected to continue expanding their operations.
In August 2020, the county budget staff estimated data center tax revenues, which were expected to bring in nearly $395 million in the 2021 county budget, could grow in the next year by another$130 million to $200 million. Already, data center revenues offset the entire county government operating budget, not including schools.
And grow they have, but not by as much as expected. The largest source of local tax revenue from data centers, the tax on computer equipment, is now forecast to come in $24 million less than predicted.
That caused concern among budget and economic staff members and supervisors on the board’s finance committee. The tax is self-reported by the data center companies, and Economic Development Executive Director Buddy Rizer said during the April 14 finance committee meeting that his department has been working to figure out what happened. Some of it, he said, may have been that data centers have delayed replacing their older equipment over the past year.
“One of the things that we have heard is that a lot of the refresh that we are expecting was put on hold because of COVID,” Rizer said. “They only have essential personnel into the data center, so some of that was put on hold.”
That would allow the value of the older equipment still in place to drop.
The Board of Supervisors’ vote to reduce the real estate tax rate to $0.98 per $100 of assessed value also trimmed away at the expected Fiscal Year 2021 revenues. The fiscal year ends June 30, and supervisors’ vote on the calendar year 2021 tax rate impacts the second biannual real estate tax collection of the fiscal year.
Loudoun is required by law to balance its budget, and the budget is still expected to balance, albeit with a lower year-end balance than usual. Current forecasts predict a $17 million year-end budget surplus; in years past, that figure has approached $100 million.
The county finance staff also prepares revenue projections conservatively, and actual tax revenues tend to improve over early forecasts.
The latest projections also show the wisdom of keeping $50 million frozen in the county budget in Fiscal Year 2021—without that money, the county budget would be in the red.