‘Project Echo’

Henrico County was kept in the dark about data-center owner’s identity

Published March 2, 2018 by Gary Robertson

For months, Henrico County officials worked in the dark, trying to land a major industrial client who preferred anonymity in negotiations.

“It was a dialogue that continued over 10 months basically, before they announced the project,” says Gary McLaren, executive director of the Henrico Economic Development Authority.

The wait was worth it. Facebook, the California-based social media giant, announced on Oct. 5 that it would build a nearly 1-million-square-foot data center in Henrico.

Facebook’s direct investment would be $750 million, with a total investment of about $1 billion by the time the multiphase project is completed in 2019.

The total includes hundreds of millions of dollars spent under an arrangement with Dominion Energy to create solar energy facilities across the commonwealth. The goal is to provide the Facebook data center with 100 percent renewable energy.

“The unique thing about this project is that they wanted most of the permitting in place and the agreements in place before they were willing to announce and close the order,” McLaren says.

To sweeten the deal, Henrico dropped its data center tax from $3.50 per $100 to 40 cents.

That tax reduction occurred before the county even knew who the client was. But in early discussions, when Facebook was known only as “Project Echo,” Henrico officials say it became obvious that their $3.50 data-center tax rate did not make them competitive.

“I look at economic development incentives this way,” McLaren says. “Would you rather have 100 percent of nothing, or 40 percent of something?”

It was not as though Henrico had pulled the 40-cent figure out of a hat. Forty cents per $100 was also the tax rate the county had levied on a former Henrico semiconductor manufacturer.

“We believe that at full build-out, this will become the county’s largest taxpayer. So, that’s pretty significant,” McLaren says.

The county has smaller data centers that now will pay the lower tax rate.

McLaren says the 40-cent tax also is a shout-out to other companies searching for the right spot to build data centers.

“I do think we got some people’s attention,” he says.

The Facebook data center will be built in phases on more than 300 acres in Henrico’s White Oak Technology Park.

The first phase, encompassing the 1 million square feet, will be operated by 100 employees and contractors.

In time, another three buildings are expected to follow. They will bring the overall square footage of the complex to 2.5 million square feet, with a potential full-time employment of 240 workers.

McLaren says that the 2,300-acre White Oak Technology Park still has room for other data centers and technology clusters. The county lists the available land at 1,292 acres.

From a data center operator’s standpoint, a selling point is the presence of two 230- kilovolt electric lines on the site. If something happens to one power source, the other would be instantly available.

At the time Facebook made its announcement, the governor’s office cited a 2017 U.S. Chamber of Commerce study that suggested a data-center project of Facebook’s size in Henrico could:

• Employ up to 1,688 local workers during construction.
• Provide $77.7 million in wages for those workers.
• Generate $243.5 million along the local economy’s supply chain.

McLaren and other Henrico officials credit Dominion Energy with shepherding the project to the Richmond area.

To make the project work with renewable energy, Dominion and Facebook negotiated a special renewable energy tariff designated as Schedule RF and submitted it to the State Corporation Commission for approval. The tariff also will allow other large energy users to have access to renewable resources.

Moreover, the McAuliffe administration said that any renewable energy projects tied to the tariff would be built in the state, enlarging Virginia’s solar footprint.

McLaren says one of the important aspects of data-center operations is that the banks of computers they house are refreshed every three years or so.

That means the tax revenue of data centers remains constant, as new equipment is moved in to replace older equipment that has depreciated in value.

Henrico County Manager John Vithoulkas likes to explain the county’s pro-business tax philosophy this way: The county tries to see how low it can go on taxes and how high it can go on providing services within those revenues. “It’s pretty straightforward, but it has been incredibly effective,” Vithoulkas says.

He notes that in the past few years the county has reduced its machinery and tools tax and its aircraft personal property tax by 70 and 67 percent, respectively.

Vithoulkas adds that new companies and new aircraft have more than made up for any tax revenues that were initially lost.

For residential property owners, he says, it’s a matter of pride in Henrico that the real estate property tax is 87 cents per $100, one of the lowest for large urban areas in Virginia. The rate has not been increased since 1978.