HB 2014, Governor Morrisey’s “Certified Microgrid Program” legislation, passed the House last week and is now under consideration in the Senate. While much of the attention has focused on how this bill could draw “High Impact Data Centers” to West Virginia, it would also take local control from counties and municipalities to enforce their own ordinances while diverting millions in property tax dollars generated from the data centers. Instead of staying in the community to fund schools, public safety, and other local public services, HB 2014 would divert the data centers’ property tax revenues to the state to fund tax cuts that primarily benefit wealthy households and to prop up aging coal and natural gas plants instead.
A pending committee substitute of HB 2014 in the Senate Economic Development Committee on April 8th changed the allocation of funds once the data center property tax dollars are sent to the state, adding a provision that will send 30 percent of the funding back to the county in which the data center is located, but still diverting 70 percent of the property tax revenue generated to state priorities. Updated estimates of the impacts to counties if the committee substitute is adopted can be found at the bottom of this piece.
Take for instance a hypothetical $1 billion High Impact Data Center investment locating in the municipality of Man in Logan County. Under HB 2014, the property tax generated from the base assessed value (what the property was worth before improvements) would stay with the county. Let’s say in this hypothetical, the unimproved property was worth $2 million. Logan County would get $9,917 in base assessed value property tax revenue; the Man municipality would get $5,702; and the Logan school district would get $18,010.
The property tax generated from the $1 billion data center investment, instead of going to the county as it would now, would be diverted to the state and distributed to a number of state funding streams, including a newly created “Personal Income Tax Reduction Fund.” Under this hypothetical, at least $10.4 million in property tax revenue generated from the investment would be lost to Logan County, Man, and Logan County Schools, with more than $16 million lost if excess and bond levy revenue is also included in HB 2014, which is currently unclear. All told, up to $4.6 million could be diverted away from Logan County, $2.9 million away from Man, and $9.0 million away from the county school district. Put another way, HB 2014 would divert more than 99.8 percent of the municipality of Man’s share of property tax revenue generated from the data center out of the county and to the state, despite the fact that the data center would almost certainly create new costs for city services (see figure below). Without HB 2014, if the hypothetical data center located in Man, the municipality, county, and school district would get to keep all the property tax revenue outlined above.
As another example, let’s look at Berkeley County and the municipality of Martinsburg, with another hypothetical $1 billion data center investment on an unimproved property worth $2 million. Property tax revenue of the base, unimproved value of the property would total $37,546, with $6,427 going to Berkeley County, $8,213 going to Martinsburg, and $22,906 going to the school district.
The property tax revenue from the improved value of the data center would be diverted to the state, taking $3.2 million away from Berkeley County, up to $4.1 million away from Martinsburg, and up to $11.5 million away from the county school district (depending on the inclusion of excess and bond levy revenue), for a potential total of up to $18.8 million diverted away from local governments and schools.
While some of the school district’s lost revenue could be expected to be made up through the state aid formula, the revenue for the counties and municipalities would likely be unrecoverable, as local governments have few mechanisms for raising revenue outside of the property tax. And while county and local governments would lose the tax revenue, they’d still be on the hook for providing the additional local public services associated with the data center, including police and fire response, maintenance of roads and other infrastructure, and costs associated with any population growth.
Recent reporting from Tucker County uncovered plans for a self-contained power plant and data center there. While there is little information publicly available about the project, the company heading it up, or the expected investment, we can again estimate the hypothetical impact on property tax revenue from a $1 billion investment, assuming the property’s unimproved value is $2 million.
The only property tax revenue Tucker County and the school district would retain would be based on the unimproved value, bringing in just over $15,000 (based on our hypothetical estimates). Meanwhile, the property tax from the data center’s investments would be $7.8 million per year ($3.1 million taken from the county and $4.7 million taken from the school district), meaning the state would see a benefit 500 times greater than Tucker County.
According to local coverage, “local officials and environmental groups expressed concerns about the potential for significant air, water, and light pollution.” Despite that, HB 2014 preempts counties and municipalities from enacting, adopting, implementing, or even enforcing existing ordinances, regulations, or rules that limit the data center; exempts the data center from any zoning, building permitting, or license requirements; and says microgrid districts and data centers are not subject to any “legal jurisdiction” of the county or municipality in which they are located.
The diverted property tax funds would be distributed across a number of funds:
The largest portion, which would go into a newly created “Personal Income Tax Reduction Fund,” would be applied to the formula that determines whether state revenues hit a “trigger” threshold to reduce the state’s personal income tax, meaning that local property tax revenue that is meant for schools and local public services will instead be used to provide tax cuts that overwhelmingly benefit the state’s wealthiest households. In addition, diverting local school tax revenue would not be cost neutral to the state. Under normal circumstances, increases in local school tax revenue increase the local share in the school aid formula, and reduce the state’s share, meaning the state saves money when local property taxes increase. Under HB 2014, the state would not realize those savings through the school aid formula.
Rather than ensuring that new data center investments locating in West Virginia deliver broad benefits to our population, HB 2014 diverts existing property tax revenues to fund tax cuts that overwhelmingly benefit the state’s wealthiest households while undermining a critical revenue source for public schools and local public services. Without HB 2014, High Impact Data Centers still have the same incentives to locate in West Virginia and schools and local governments will not have to forfeit critical local revenue.
The Senate Economic Development Committee amended HB 2014, making changes to the distribution of the diverted property tax revenue, including sending a small portion of the revenue back to the local governments who it is initially diverted from. The governor’s office representatives also clarified that revenue from local excess and bond levies would not be affected.
The new fund distribution is as follows:
Using the example of a $1 billion data center locating on $2 million of existing property in Man, Logan County, $7.3 million in property tax revenue would be lost by Man, Logan County, and Logan County Schools, after the 30 percent is sent back the the local governments. All told, $2.0 million would lost by Logan County, $3.3 million from Logan County Schools, and $2.0 million from Man. Without HB 2014, if the hypothetical data center located in Man, the municipality, county, and school district would get to keep all of the property tax revenue.
For the Martinsburg, Berkeley County example, HB 2014 would take $2.2 million away from Berkeley County, $2.0 million away from Martinsburg, and $3.3 million away from the county school district, for a total of $7.5 million lost by local governments and schools, after the 30 percent is sent back to the local governments.
For Tucker County, under HB 2014, a $1 billion investment would result in $2.1 million lost by the county and $3.2 million lost by the school district for a total of $5.4 million in lost property tax revenue, after the 30 percent is sent back to local governments.
HB 2014 would still divert the same amount of dollars meant for schools and local public services to fund tax cuts that overwhelmingly benefit the state’s wealthiest households while causing local governments to forfeit critical local revenue.
