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Senate passes bill giving tax breaks to eligible data centers locating in Connecticut

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The state Senate on Monday evening passed a bill that would provide data centers locating in Connecticut with tax breaks if they invest a certain amount of money, a measure that has garnered enthusiastic support from some eastern Connecticut legislators and advocates for the building trades.

The Senate passed the bill 29-5, after the House passed the bill by a 133-13 vote last Wednesday, which Gov. Ned Lamont applauded.

H.B. 6514 An Act Concerning Incentives for Qualified Data Centers to Locate in the State defines a qualified data center as a facility that houses networked computer servers in one location, thus centralizing the storage and dissemination of data.

The legislation allows exemptions from sales and use, property, and financial transactions taxes, if the developer of the data center applies to the commissioner of the Department of Economic and Community Development and meets certain requirements within five years.

To get a 20-year agreement, the data center must make an investment of $50 million if the center is located in an enterprise zone or opportunity zone, or $200 million if it isn't. The commissioner can extend the agreement to 30 years if the investment is $200 million in an enterprise zone or opportunity zone, or $400 million otherwise.

A developer or owner can't begin construction or renovation of a data center until entering into an agreement negotiated with the host municipality, which could require payments in lieu of taxes. If the terms of the agreement aren't met, the data center has 180 days to remedy the issue or else the agreement can be terminated and the data center is liable for taxes.

The state's nonpartisan Office of Fiscal Analysis doesn't anticipate any revenue impact from the bill. Data centers would be required to pay up to $50,000 annually to a new office within DECD, but OFA anticipates that would cover additional administrative costs.

Randy Collins from the Connecticut Conference of Municipalities said in a public hearing last week he's hearing that these types of facilities are being considered for eastern Connecticut, and he's had conversations with Groton, Montville and Norwich.

Collins stressed repeatedly that towns don't have to take advantage of this opportunity, that they can say no to an agreement they don't find beneficial.

Some legislators expressed that they think a 30-year period is too long for a tax abatement program, but Sen. Heather Somers, R-Groton, said without 30-year agreements, data centers likely won't come.

A vocal advocate for the bill, Somers said it would create a landscape needed to increase jobs, decrease reliance on the gaming and defense industries, and provide opportunities for land that otherwise isn't being used.

She stressed that hyperscale data centers need consistent energy, fiber connectivity, and land, but unlike other buildings that require sewer and other infrastructure, data centers could be located in more rural areas. They also are attacted by tax breaks.

Somers also noted that data is doubling every 18 months and there's not enough cloud space for storage, and that Connecticut hospitals have their storage in Indiana.

"Connecticut is well positioned to attract investment from this growing industry that seeks a highly skilled workforce and benefits from proximity to the state's established industries: finance, technology, defense, health care, and insurance," Chamber of Commerce of Eastern Connecticut President and CEO Tony Sheridan said in written testimony supporting the bill. Sen. Cathy Osten, D-Sprague, also submitted written testimony in favor.

Sen. Rob Sampson, R-Wolcott, one of the five to vote against the bill, slammed it as corporate welfare, saying the state shouldn't "give any more power to a few well-connected people to decide who wins and who loses." Sen. Matt Lesser, D-Middletown, who also voted against the bill, tweeted that tax competition with neighbors is "bad, self-defeating policy."

In response to Sampson, Sen. Norm Needleman, D-Essex, said Connecticut is competing with 49 other states, and that a difference between prior incentives is the state isn't giving anything upfront.

Needleman said in addition to the "huge amount of money required to construct one of these facilities, the ever-hanging technology means much of the equipment becomes obsolete within 2-3 years and has to be replaced."

DECD Commissioner David Lehman said some of these centers can have 1,000 or more jobs needed to construct them over 18 or 24 months. Joe Toner of the Connecticut State Building Trades Council said there is 30% unemployment in the trades and many members are traveling to New York, Massachusetts, and Rhode Island, making this bill a great opportunity. Osten estimated a data center would generate about 50 permanent jobs and 1,500 construction jobs.  

Beyond job creation, Lehman said the two main benefits are growth in a town's grand list and income tax revenue. He also commented, "When you have state-of-the art data centers, you generally are going to have financial and technology jobs that want to be proximate to those data centers."

He said this legislation would not impact existing data centers unless they decided to do a large enough renovation or new construction.

Monday morning, Senate Democratic leadership said in a press release they expected the bill to pass, but announced a commitment to vote on another bill later in the session "to address the environmental impacts of data centers, including green building standards, emission standards for diesel generators used by data centers, and environmental justice."

Paul Mounds, chief of staff to the governor, said in a statement Monday the Lamont administration is committed to passing an environmental bill later this session that augments the current legislation.

This was a concern that Sen. Christine Cohen, D-Guilford, chairwoman of the Environment Committee, expressed last week and on Monday, noting that data centers use "massive amounts of electricity."


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