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MAR 09, 2021

With the goal of attracting a new industry into Connecticut, Gov. Ned Lamont has signed legislation providing long-term tax breaks to data centers, the 21st-century warehouses of countless bits of information stored by users as varied as medical researchers, academics, and financial services companies.

To backers of a measure offering tax credits to the centers that house computers storing and processing data, it’s a start to making the state competitive in attracting high-tech industry and overcoming years of low-wage job creation. “I’m just enormously pleased we’ve gotten focused on this,” said Fred Carstensen, a University of Connecticut economist who for years has pushed state policymakers to bring data centers to Connecticut. “The last 10 to 12 years we’ve had the worst-performing economy. We’ve got to change that trajectory.”

Opponents call it corporate welfare that provides overly-generous tax breaks.

“We are gathered here to try to lure an industry to Connecticut that as far as I can tell will provide few lasting jobs, but provides major costs,” Sen. Matt Lesser, D-Middletown, said during a recent Senate debate. “Those costs are to taxpayers who will be providing the industry with significant 30-year tax breaks, to our energy grid, which will be taxed by enormous strain when we should be working to double down on efficiency.”

Legislation overwhelmingly passed the House of Representatives on Feb. 24 on a 133-13 vote and was approved by the Senate, 29-5. Gov. Lamont signed the bill into law on March 5.

The bill authorizes the state Department of Economic and Community Development to sign tax incentive agreements with qualified data centers for 20- or 30-year terms, depending on the size and location of the data center investment.

A data center’s owner must spend at least $50 million to qualify if the center is in a federal opportunity zone or an enterprise zone and $200 million if it is built elsewhere.

Supporters say data centers could be used to attract the financial services industry that handles trades once confined to the floors of stock exchanges but are now made online.

To organize support for data centers, Lamont turned to his economic development commissioner, David Lehman, who said he worked with data center clients in his years at Goldman Sachs, the New York investment bank and financial services company.

The Lamont administration began talking in 2019 with representatives of MEMX, a member-owned equities trading platform, about bringing trading business to data centers in Connecticut, he said. Facing the prospect of taxes on financial services in other states, the industry sought a “back-up home,” Lehman said.

Pushing back against criticism of data centers’ consumption of electricity, Lehman said major companies with data centers are increasingly looking to use zero- or low-carbon energy. Connecticut’s grid, with a large nuclear power component and agreements for future offshore wind, “would bestow (on) Connecticut…substantial new economic activity,” he said.

Carstensen blamed “some ill-informed environmentalists” who believe data centers increase demand for fossil-fuel electricity.

“They are wrong–because no industry is more committed of green energy than data centers; big tech already buys millions and millions of carbon credits,” he said.

For users of data, such as academic researchers, the proximity of a center could be an advantage, said Thomas Peters, a computer scientist and mathematician at the University of Connecticut.

“Nearby may help me. I can get in and out faster on networks dedicated to me,” said Peters, who says his views do not reflect UConn or the local American Association of University Professors with which he’s affiliated.

Low overhead and local control also are advantages to a data center close by, he said. Data centers in other countries are governed by local laws such as those related to copyright protection, he said.

However, local centers are usually less disaster-proof, jeopardizing data in floods or earthquakes, Peters said.

Supporters are promoting data centers as engines of high-paid job growth, disputing critics such as Sen. Alex Kassser, D-Greenwich, who said during the debate that data centers are run by software, “not by people,” and require “only a skeletal staff.”

A U.S. Chamber of Commerce study cited by Gene Goddard, chief business investment officer at MetroHartford Alliance, said a typical large data center supports 157 local jobs and $7.8 million in wages.

Connecticut is one of 18 states without a targeted incentive to develop data centers, Goddard said.

“As a result, we are not competitive, losing out on hundreds of millions of dollars in direct investment and thousands of jobs that are being created in other regions,” he said.

That’s a key argument by backers who point to years of lackluster job growth in Connecticut. And where jobs have been created has been in low-wage industries such as warehouses and tourism, Carstensen said.

Data centers employ top-paid engineering and other jobs that could help Connecticut overcome the rise in low-wage jobs created in the marketing wars that promise next-day delivery with the construction of fulfillment centers and warehouses by giants such as Amazon and FedEx, he said.

“The last thing Connecticut needs is to be the warehouse for New England,” Carstensen said.