Why Should Delaware Care?
Delawareans debating the impact of data centers often cite nearby Virginia as an example of the benefits they could bring and a cautionary tale of overdevelopment. Last week, two Virginia leaders spoke for themselves to Delaware lawmakers.
As Delaware debates whether an embrace of the data center industry will put too big of a toll on the electricity supply, two officials from Virginia testified to state legislators that their region has benefited greatly from the high-tech facilities.
The lawmakers on the Senate Environment, Energy and Transportation Committee listened politely to the comments made on Friday, but revealed little about whether they were persuaded in what has become one of the state’s biggest economic development debates in years.
Buddy Rizer — Loudoun County, Virginia’s economic development director — recounted how his region was in a tough spot in the wake of the 2008 financial crisis. Officials there, he said, had to raise taxes and cut staff as the economy struggled to regain its full output.
Then came a proliferation of data centers into his region, which would eventually become known as “Data Center Alley.” And with them came hundreds of millions of dollars in tax revenue for Loudoun County, Rizer said.
Now the county can build new schools, create new parks and dedicate funds to affordable housing, he said. It also lowered the residential tax rate.
“Today’s economy is based on the infrastructure that data centers bring. It’s not a matter of if data centers [will come], it’s where and how,” Rizer said to lawmakers.
Rizer’s testimony, and that from another Virginia official at the center of that state’s data center boom, highlighted what they called the “transformative” economic impact of data centers.
The state was first to capitalize on the boom in the industry sparked by investors seeking the financial windfalls of the artificial intelligence.
But whether that could occur in Delaware from five proposed data centers is unclear.
In Delaware, the tax structures are different.
Unlike Virginia, Delaware does not have a sales tax or a personal property tax, meaning that local counties could not levy an annual tax on the valuable servers within data centers.
And the recent property tax reassessment controversy in New Castle County has demonstated that assessors only consider the building as rentable space, and not its current use — likely limiting the assessed value.
During Friday’s committee hearing, Rep. Frank Burns (D-Pike Creek) indicated that the tax structure acts as an incentive for developers.
“In a sense, we already have pretty much all the tax breaks that anyone has ever wanted to give to a data center developer,” Burns said.
But members on the other side of the aisle — including Republican Reps. Jeff Hilovsky (Long Neck, Oak Orchard) and Richard Collins (Millsboro) — argued that Delaware needs to attract the industry.
“We either use AI or we’re going to be in the backwaters of history,” Collins said.
Tax revenue with few jobs
Also testifying to the state legislators Friday was Glenn Davis, Virginia’s former director of its Department of Energy, who argued that the relatively small number of jobs that data centers create is actually a benefit.
Additional workers, he said, would require better roads, more schools and other amenities that the county would have to pay for. Data centers provide a tax base for those services without requiring as much investment as other industries. That allows municipalities to use the tax revenue to spur economic growth in other sectors, he said.
“I don’t want to call it free tax revenue, but essentially, to a locality, it’s free tax revenue,” Davis said.
He later told Spotlight Delaware that he thinks Delaware could still benefit economically from data centers despite its low taxes because the industry’s valuations are skyrocketing.
Davis also touched on what many view as the most salient critique of data centers.
He acknowledged that it is possible for data centers to raise energy prices locally, which could offset some benefits. But he said that could be prevented by imposing rules that ensure energy infrastructure upgrades are paid for only by the data center companies.
Delmarva Power recently created a proposal for a “large-load tariff” with the goal of doing just that. But during a public comment session Wednesday for the proposal, several residents said the proposal did not go far enough to stave off high energy bills.
