More data centers applied for Arizona tax breaks in the two weeks before a pause went into effect than were approved for tax incentives in 13 years, new data shows.
Arizona's latest budget, signed into law by Democratic Gov. Katie Hobbs on June 13, included a 3-year pause during which the state will not grant new applications from data centers for tax exemptions. But the new data raises questions about what impact the pause will have, and whether it merely created a rush of applications.
In the last two weeks of June, after the budget was inked but before the pause began, the state received 113 applications for the data center tax exemption, according to the Arizona Commerce Authority. That is 30 more than had been approved over the prior 13 years.
From 2013 to mid-June, the ACA approved 83 data centers for the tax breaks, which are only afforded if certain project conditions are met.
People are also reading…
Arizona created tax incentives for data center development in 2013. Those projects are exempt from paying sales tax on equipment purchases if they hit a minimum level of capital investment within five years of applying to the Arizona Commerce Authority. The lifespan of the tax exemptions is typically 10 years but can be up to 20 years, depending on the specifics of each project, meaning data centers that replace equipment every three to five years can repeatedly benefit.
The commerce authority has 60 days to review applications to make sure the projects qualify under terms set out in state law, so some of the new applications ultimately may not qualify. And many of the recent applications were not for entirely new projects, but were for additional facilities at existing data center projects, according to the ACA.
On July 7, the same day the state released the application numbers, Hobbs and Democratic legislative leaders held a news conference to proclaim the 3-year pause the "toughest data center policy in the country," as Hobbs framed it. The pause was one of Hobbs' major wins in the budget plan, and she said it will allow the state to collect tax dollars that can be used for health care and childcare for the state's low-income families.
Arizona's latest budget includes a 3-year pause on new applications from data centers for Arizona tax exemptions.
Across the state, communities have been sharply divided over data center growth. The massive facilities have exploded to keep up with demand for artificial intelligence, but also raised concern about their significant water use to cool their equipment. Policymakers have differed on how to regulate data centers and whether to incentivize their growth here.
Critics of the tax breaks, like state Sen. Jake Hoffman, R-Queen Creek, said the rush of new applications showed Hobbs' policy wasn't effective.
Hoffman is the Capitol's most vocal Hobbs critic. And while he voted for the state budget, he also criticized it for helping billionaires and special interests that Hobbs said it was cutting off. The data center incentives were one example of that, he said at the time.
"The explosion of data center tax credit applications from the world’s richest corporations at the hands of Katie Hobbs is further evidence of just how hollow her rhetoric really is," Hoffman told The Arizona Republic on July 7.
"While Hobbs virtue signals, her own state agency rolled out the red carpet allowing a flood of corporate handouts in an attempt to game the system ahead of the pending application deadline. Thanks to Hobbs, in just two weeks Arizona received 136% more data center tax credit applications than in the prior 13 years combined."
Hobbs' spokesperson, Christian Slater, did not directly answer a question about the ACA data. He reiterated Hobbs was "proud to have put a moratorium on the data center tax exemption" effective July 1. That was "one of the toughest new policies in the nation," he said, and was part of a budget that would "lower the cost of childcare, protect rural hospitals from Washington's partisan cuts and help working families put food on the table."
Arizona Land Consulting was one of the 113 projects that worked quickly to get its application in ahead of the deadline, according to founder Anita Verma-Lallian. Arizona Land Consulting has plans for a $25 billion data center development near Tonopah.
Most projects that are serious and have been in the works in Arizona were likely to have gotten their applications in before the deadline, she said.
"There was a huge rush to get it done," she said.
Data centers cost so much to build that the tax incentive likely will not be what makes or breaks a deal, Verma-Lallian said, but said she is concerned that the three-year moratorium will discourage data centers from locating in Arizona.
"The biggest concern I have is the messaging to the industry that Arizona is not a market that is welcoming to data centers," Verma-Lallian said, adding that the companies want to bring their investments into places where they are welcome.
In January, Verma-Lallian and Nico Howard wrote a letter to Hobbs, signed by 65 businesspeople, asking for the incentives to remain in place. Hobbs had proposed getting rid of them entirely.
"Data centers are no longer optional, they are foundational to economic competitiveness and national security," the letter said.
