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Kentucky Lawmakers Advance Data Centers Incentives Bill

Kentucky state lawmakers on Tuesday approved new state tax breaks potentially worth millions of dollars in hopes of luring large high-tech facilities that would provide an unknown number of jobs.

(TNS) — Kentucky lawmakers on Tuesday approved new state tax breaks worth millions of dollars in hopes of luring large high-tech facilities that would provide an unknown number of jobs.

The House budget committee passed House Bill 372, which would give an exemption on sales and use taxes to corporations like Amazon, Facebook and Google if they open data centers inside the state. The bill's drain on the state budget would start at $15 million a year and possibly rise, according to a fiscal note attached to the bill.

"The negative impact to the General Fund at full implementation will be substantial if a number of entities avail themselves of this exemption," the fiscal note continues.

To qualify for the tax breaks, which would be guaranteed for 30 years, the tech companies must agree to create at least 20 permanent jobs and spend at least $150 million within five years on the construction and equipping of one or more data centers, where computer servers would run continuously.

A trade association of tech companies called NetChoice is encouraging the states to create tax breaks in order to compete among themselves for the data centers. NetChoice representatives told the House panel on Tuesday that Kentucky should enter the contest where states like Virginia and Ohio already are celebrating ribbon-cuttings.

Virginia recovered over a dollar in state revenue for every dollar in state taxes exempted for data center equipment and purchases," testified  Barbara Comstock , a NetChoice advisor who helped craft data center tax breaks in Virginia when she served in that state's legislature.

"As a former state legislator, I certainly appreciate your state budget challenges," Comstock said. "But I can tell you, this is something that I continue to see great headlines in our local community about what a resilient industry this is and how, while other things during the pandemic have reduced revenues, data centers continue to be the resilient thing in the economy, the gift that keeps giving."

Some members of the committee's Democratic minority asked skeptical questions about how many jobs would be created in the cavernous buildings full of computers and whether tech giants like Amazon and Facebook — among the wealthiest corporations on the planet — really need to withhold tax money from Kentucky's budget as part of their expansion plans.

"I'm not entirely sure it's going to pay off," said state Rep.  Josie Raymond , D- Louisville.

"I don't think Facebook needs tax coupons. I think Facebook's gonna do what Facebook's gonna do, and I don't want them to give better snacks to their employees in California on the backs of Kentuckians," Raymond said.

However, NetChoice representatives urged the House committee to consider the positive impact on local communities where a data center might be built.

"Once we're done building it, up to 100 data center employees come on board, and we pay excellent salaries to those folks. So it's not a giant impact on a local community but all the jobs are very high-paying," said NetChoice president  Steve DelBianco .

"America's top investment heroes are tech firms," DelBianco added. "Those tech firms made $70 billion in capital investments in the U.S. alone last year. That is more than any other industry, including energy, pharma, telecom or manufacturing. Thing is, no enterprise data center like I've been describing has ever located in Kentucky nor in any other state that imposes sales tax on data center equipment for the last eight years."

The committee voted 18-to-2 in favor of the data center tax breaks.

"I'm overwhelmingly 'yes,'" said state Rep.  Robert Goforth , R- East Bernstadt, casting his vote. "I hope that when these data centers start looking at Kentucky, they look at my district."

Next, the committee approved House Bill 230, which would remove the sales tax from electricity purchased by crytptocurrency mining operations. The panel voted 19-to-2 for that measure.

The bill's fiscal note estimated its cost to the General Fund to start at $1 million a year. But the full cost after that cannot be determined, legislative staff wrote, because "it is unknown how many of the businesses might choose to locate here to avail themselves of this exemption."

Mining cryptocurrency, such as Bitcoin, is a complicated process. Miners use large rooms full of high-powered computers to solve complex math problems and unlock new currency. Next, they clump the resulting transactions together in blocks; the combined public record is known as the blockchain.

Kentucky needs to attract more cryptocurrency mining, and it can do so by offering tax breaks on the electricity the facilities consume in large quantity, the bill's sponsor said Tuesday.

"Mining for cryptocurrency takes a lot of electricity," said state Rep.  Steven Rudy , R- Paducah. "It is very heavily impactful on industrial-type things. It is not just a few people sitting in their mom's basement or in their parents' basement writing code. This is actually highly sophisticated, highly technical."

Core Scientific announced two years ago that it was opening a blockchain facility in an abandoned steel mill in Marshall County. Today, Rudy told his colleagues, the facility uses more electricity for cryptocurrency mining than it did as a steel mill.

But Rudy said he did not have specific numbers when some committee members asked him how many jobs the tech-loaded facilities would create or how much electricity they would use.

In January, Kentucky economic development officials approved tax incentives for Blockware Mining to open a cryptocurrency mining operation in leased space in Paducah, with a total investment of $28.4 million. Blockware Mining reported plans to create 10 jobs with an average hourly wage of $23, including employee benefits.

A few Democrats on the panel said they questioned the wisdom of forfeiting state revenue to woo a profitable industry that already is opening facilities inside Kentucky. The fact that the facilities consume so much electricity is not a good thing for the state, they said.

"Why do we particularly want this industry in Kentucky?" Raymond asked.

"We would love to have more industry," Rudy replied. "We welcome industry here."

The Kentucky Senate is advancing its own tax break bill for cryptocurrency mining, Senate Bill 255.

(c)2021 the Lexington Herald-Leader (Lexington, Ky.). Distributed by Tribune Content Agency, LLC.