The General Assembly last year overwhelmingly approved the legislation that Gov. Ned Lamont quickly signed into law providing tax incentives to lure developers of data centers. The intent was to compete with other states and spark development of the sites used for data of all kinds: medical, economic, demographic, financial, government records and countless other uses.
Opponents cited costs to taxpayers who will finance 30-year tax breaks and the stress on the state’s energy grid.
The legislation came with a sense of urgency, to compete with New Jersey, which was considering ways to jump-start data center development. The Garden State ultimately balked at providing tax breaks and the “conversation quieted down significantly,” said David Lehman, Connecticut’s economic development commissioner.
More than a dozen data centers have expressed interest in “doing something in the state or elsewhere, and we’re educating them about the state,” he said. “We’re playing the long game with this law.”
The trouble now is closer to home.
Data center developers are struggling to get their footing in the new marketplace, and municipalities are figuring out land use and other rules.
“There are a lot of unknowns about this use,” said Kevin Pagini, Wallingford’s town planner. “We’ve been researching for months and months.”
Noise concerns
Wallingford, with its own municipal utility that generates electricity at a lower price than what’s offered by Eversource Energy and United Illuminating, is drafting regulations to accommodate data centers. Municipal utilities in Groton, Norwich and Wallingford are a selling point to data centers that require tremendous amounts of power.
Planners are learning that data centers are nothing like condos, shopping centers, warehouses and office buildings that typically take up their time. Pagini said he’s hired specialists, spoken to other municipalities with data centers and is “doing as much research as possible.”
A sound engineer was hired to help planners draft regulations to respond to potential concerns about noise such as constant humming from data centers, electrical substations and emergency generators that operate 24/7, he said.
Mike Grella, chief operating officer at Gotspace Data Partners, said Wallingford’s low decibel limit would rule out a data center, demonstrating that communities don’t understand data centers.
The town of Groton recently halted efforts to negotiate a host agreement with a data center developer. Town Councilor Aundré Bumgardner said his concerns focused on possible impacts on air quality from diesel generators.
Glenn Pianka, Bozrah’s first selectman, said applicants for a data center did not follow up and the town dismissed the proposal, which may be resubmitted.
Spokesman Chris Riley said Norwich Public Utilities has had preliminary discussions with a few data center developers he did not identify. “The pandemic slowed things down,” he said.
Links between data centers, finance and insurance
State legislation authorizes the Department of Economic and Community Development to sign tax incentive agreements with qualified data centers for 20- or 30-year terms, depending on the size and location of the data center investment.
A data center’s owner would have to spend at least $50 million to qualify if the center were in a federal opportunity zone or an enterprise zone and $200 million if it were built elsewhere.
“I’m disappointed we haven’t been able to make more progress,” said Fred Carstensen, a University of Connecticut finance and economics professor who has been a vocal supporter of data centers he says will more strongly link Connecticut with the world economy that’s dependent on digital transactions.
“If you’re in insurance and finance, you have to have powerful data centers,” he said. “You need to have the data here to keep the jobs here.”
State Sen. Heather Somers, R- Groton, is bullish on data centers and urges patience.
“It’s not just like a data center can snap its fingers,” she said.
Corporate decision-makers must settle on a site, land acquisition deals have to be executed and municipalities must go through public procedures before officials agree to host the data centers, Somers said.
She said she hopes to see “some significant movement” by summer or fall.
With or without Connecticut, the global market for internet data centers is expected to more than double over seven years. Its size was estimated at $59.3 billion in 2020 and is projected to grow to $143.4 billion by 2027, according to “The Internet Data Centers — Global Market Trajectory and Analytics.”
Grella said he is closing on a round of funding and on land parcels before he approaches towns with data center proposals.
“We’re going to hold back ... if it’s half baked,” he said.
Aging population and ‘fear of the unknown’
Grella said he did not want to say how long it will be before he has an agreement with a town to build a data center, but that it could be in the next year. He said Connecticut’s tax incentives are “among the most aggressive” in the U.S., but developers, site selectors and project managers are not familiar with the law.
“Connecticut really has put itself in a durable advantage and position of strength relative to its mid- Atlantic peers,” he said. “The big issue right now is communities don’t understand what data centers are about.”
State Sen. Cathy Osten, D- Sprague, said real estate agents are pushing forward on land purchases without interest shown by data centers.
“The middle man is coming in, buys real estate and works with data centers,” she said. “It should be the opposite. A data center of such and such a size will work with you. That’s not been the case.”
Tony Sheridan, president and chief executive officer of the Chamber of Commerce of Eastern Connecticut, said Connecticut is “getting to be an older state” with more retirees and “people fearful of the unknown.”
“The key is finding the right location for them,” he said.
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