Loudoun Faces $60M Data Center Tax Shortfall

Lower-than-forecast tax revenues from data centers and a huge anticipated request for funding from the school system may mean supervisors have to make some tough calls when they work on the next annual county budget.

County staff members are still working to figure out why data center tax revenues—which for years have grown even faster than forecasts—this year grew more slowly, but the difference appears to be some combination of COVID-19 pandemic impacts such the microchip shortage, and, more worryingly, possibly a long-term shift in the industry.

The total assessed value of the computer equipment inside Loudoun data centers—the source of the bulk of the tax revenue the county government gets from those operations—came in about $1.1 billion dollars short of forecasts in 2021, at $10.1 billion compared to $11.2 billion, according to a report presented to the Board of Supervisors’ finance committee July 13. That equates to about $60 million less in tax revenue than anticipated.

While the shortfall is large, Assistant Director of Budget and Finance Caleb Weitz noted it is less than 3% of the county’s overall General Fund revenues.

Forecasts based on how quickly new buildings had been filled with servers in the past were off this year as data center operators took longer to outfit those buildings, as well as taking longer to replace older equipment in their existing buildings. That equipment depreciates quickly—for tax purposes, in its first year it is assessed at 50% of the purchase price, decreasing each year until from the sixth year on it is assessed at 10% of the purchase price.

The county has spent years trying to hone its data center tax forecasts, with those revenues typically coming in higher than even the county’s lofty expectations. While that’s a good problem to have, it is one that supervisors and county staff members in the past have worried results in the money not being used as efficiently as it could be. Trying to a fill a hole in the budget, said finance committee Chairman Matthew F. Letourneau (R-Dulles), is an unfamiliar position for Loudoun.

“We’re in a little bit of an unenviable spot,” Letourneau said. “We worked really hard to accurately predict our data center revenue and then use more of it, only to find ourselves now in the position where we ended up overestimating for reasons that are understandable.”

County staff members hope to fill that $60 million hole through a combination of premiums from selling bonds and possible higher-than-budgeted revenues offsets in other areas. With Loudoun’s perfect credit rating, bidders on Loudoun bonds often offer more than the face value of the bond, resulting in additional funding for the county. In addition, the county government typically tries to estimate future tax revenues conservatively, possibly offering up some more money.

Whether the shortfall is attributable more to the COVID-19 pandemic, and therefore a one-time issue, or caused by larger shifts in the industry, remains to be seen, Weitz said.

“I think it’s really too early to tell until we see at least next year’s tax levy, and maybe the tax year 2023 levy, to be able to sort out what was COVID noise versus what was changes in the industry,” Weitz said. “What I think I can confidently say is, it’s definitely a mixture of both.”

Loudoun Economic Development Executive Director Buddy Rizer said the data center industry has shifted as big cloud computing providers like Microsoft, Amazon and Google build new facilities to allow them to account for sudden demand, and are able to carry the cost of holding onto those facilities as they are not immediately filled to capacity with server racks.

“The other problem is, is that we’re way out in front of everybody else, so we don’t have anything to point to, you know, where there’s a test case somewhere else,” Rizer told the finance committee. “I think that for me, we should look for a trend. … I think it’s hard to predict at this point without knowing more how much of this was the seismic change that happened because of COVID.”

It was also another warning to supervisors about being overly dependent on data centers—this year, taxes on data centers brought in enough money to cover the entire county operating budget, about a third of the overall operating budget with the other two-thirds going to schools. Supervisors in the past decided to hedge its bets on the data center revenue by sending some of that money to one-time expenses, hoping to insulate the county from small dips. Nonetheless the county has come to be increasingly reliant on the industry to balance the local government budget, with data center revenues on track to eclipse real estate taxes, the main source of income for Virginia localities. The county has also retained a consultant to review the county’s tax policy and forecasts for data centers, Weitz said.

15 thoughts on “Loudoun Faces $60M Data Center Tax Shortfall

  • 2021-08-09 at 10:06 am
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    The Loudoun county supervisors continue wasteful spending even as data center tax revenues fall short of expectations. Instead the liberal supervisors are allowing county government employees collective bargaining rights that will increase county expenses and inevitably raise taxes.
    Vote out these liberal, woke spendthrifts!

    • 2021-08-10 at 11:23 am
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      Oh yeah, the GOP is a stellar example of financial success! Trump’s GDP during his four years of mismanagment and reign of terror is among the lowest of any president. Check it out…and by the way, Trump’s tout that on the day after he lost the election, our 401.k’s would dive…well sir, mine is up over 62% since Biden won, I have made 143k, on paper of course, but an incredible gain. If that is what The Big Orange Goon calls a dive, sign me up for more!!!

  • 2021-08-09 at 10:14 am
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    Why the shortfall? The explanation is simple. The golden goose got tired.

  • 2021-08-09 at 10:25 am
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    Pigs get fat and hogs get slaughtered. I’m glad, “The county has also retained a consultant to review the county’s tax policy and forecasts for data centers…” because I don’t think the Board has the intellectual capability to think these issues through.

    The County is in for some fiscal problems on the mid-term horizon. 1) You can’t make this much money on data centers without competitors noticing and stealing your market share; 2) The Board has become dependent on this data center revenue and I think it is about to become a more volatile revenue stream; 3) The federal government will never get back to “normal.” Now that they learned to telecommute the hard way, why keep all these federal workers in the high-cost Wash DC metro area? I think the federal govt. workforce is going to shift to cheaper locations around the country; 4) Consequently, that bet on Metro is a loser. Most of the ridership is federal and they won’t be coming back.

    New Jersey-esque property taxes, here we come.

  • 2021-08-09 at 2:13 pm
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    So there is a $60m shortfall and the answer is to spend on a consultant and sell bonds. Well that’s innovative thinking right there. How about dropping some pet projects or at least delaying them until the shortfall is made up.

    Finally, it’s a data center not a restaurant, hotel, theater or retail store. How is Covid a factor for a short fall?

    • 2021-08-09 at 3:20 pm
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      Dang it Turtle! You’re not supposed to have critical thinking skills! Everybody knows chicom covid infects computers… it’s a virus after all. Signed — Fifth Floor at Harrison Street.

    • 2021-08-09 at 11:44 pm
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      Tell the School Board to pound sand. They waste millions on transgender and diversity studies which do nothing to properly educate our children while removing access to advanced classes and hindering the transparency of meetings and avoiding accountability. They don’t deserve an extra dime. In fact I’m surprised Loudouners haven’t started a property tax revolt over it all!

  • 2021-08-09 at 3:07 pm
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    LCPS might want to request a more modest budget this year. What is on the agenda is much more than it was last year. Hard decisions will have to be made and possibly deferred to a later date. There are always reasons to stay modest during a pandemic. This is one of those reasons.

    Thank you for sharing.

  • 2021-08-09 at 3:26 pm
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    Let me get this right. Last year Buddy Rizer did the data center taxes forecast and missed tax revenues by $24M. So this year the County hired a consultant to fix Buddy Rizer’s tax forecast / calculations and missed tax revenues by $60M or forecast was off by $1.1B!!!

    Problems Last Year
    Loudoun Data centers had a record year in 2020, 2018
    WFH
    Record number of small businesses were shutdown
    Public Schools were shutdown
    Record land sale prices for data center land
    CRT invades Loudoun

    Solution:
    Sell 1,100 more new homes each at $1M (Phyllis Randall “Loudoun is the wealthiest County in America)
    Raise taxes on all residents since the real estate market is HOT in 2021
    Federal Infrastructure Bill Bailout will fix America and Loudoun
    Wait for tax year 2023 to fix today’s taxes…that’s after mid-term elections. NOPE!!
    Loudoun County Board of Supervisors needs to resign immediately
    Loudoun County Public School Board needs to resign immediately
    Buddy Rizer needs to be fired. $250+K annual salary is a wasteful spending of taxpayers income. He can go spin records at the Breweries and Vineyards.
    DRAIN THE LOUDOUN SWAMP!!!
    FOIA, FOIA, FOIA!!! Before Hillary sends in the shredders

  • 2021-08-09 at 5:07 pm
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    Anyone surprised by this outcome should seriously consider whether they’re qualified to vote.

  • 2021-08-09 at 6:09 pm
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    The BOS was warned that the numbers did not add up BEFORE the buildout.

    Now they want to hire a consultant for COVER. That is is.

    No current projections have the new Loudoun metro turning a profit due to the huge reduction in DC commuters.

    Do we have any adults on the Board? Shameful waste of our money.

  • 2021-08-10 at 8:12 am
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    The (D) controlled LoCo BoS hand Loudoun property owners the highest tax bills in the Commonwealth.
    They choose to spend every single penny they collect. Then they go out and borrow even more.

    Another poster mentioned New Jersey tax bills. They’re right. That’s where we’re heading.

    Loudoun County deserves better leadership.

    • 2021-08-10 at 3:11 pm
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      Loudoun County is getting just what George Soros paid for… a Board of Stupidvisors.

  • 2021-08-10 at 3:34 pm
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    Wait…so we were sold that Data Centers, which would take up huge tracks of pristine rural land, are unsightly monoliths, take extreme amounts of electricity to operate, pollute, greatly reduce our limited water supply, require infrastructure and employ very few people, but that all those negative factors were offset by their enormous tax benefits? WTF? Blaming it on the pandemic is specious because that resulted in an even greater reliance on the internet and access to data for the hone schoolers and home offices; so the data centers should have grown financially. Someone’s got some explaining to do. BOS? Economic Development Director Rizer? Matt Latourneau? Tony Buffington? Phillis Randolph? Why does our county now have to bail out a fiscal gap left by data centers, when they were supposed to be the answer to all our tax woes?

    • 2021-08-11 at 11:51 am
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      Don’t worry, The NEXT data center will be the one that breaks the pattern.

      You know… it’s like selling something at a loss but making it up on volume.

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