Facebook May Open Third Large Data Center in Oregon

Facebook has a preliminary tax deal that would apply to a third large data center in Prineville, Ore., with exemptions similar to deals that covered its first two facilities there.

by Mike Rogoway, The Oregonian, Portland, Ore. / August 18, 2015
(TNS) -- Oregon's server farms are producing a bumper crop.

Facebook has a preliminary tax deal that would apply to a third large data center in Prineville, with tax exemptions similar to deals that covered its first two facilities there. The city council and Crook County commissioners plan to vote on the pending agreement Wednesday.

With a new tax deal in hand, Facebook said it may give the go-ahead on the Prineville project by the end of the month. Ken Patchett, Facebook's director of data center operations in the western United States, said the agreement enables the company to make "apples to apples" comparisons with other sites the company has been considering.

"We're always studying where we could go, what we could do," Patchett said.

Indications, though, are very strong that Facebook would prefer to expand in Prineville, where the company put its first corporate data center. A site for a third data center facility has been graded since the company began work on its second large facility there.

Facebook has already spent nearly $780 million in Prineville, according to county property records. It hasn't announced a budget for the third data center, but it's massive -- almost 40 percent larger than the company's last installation there.

Data centers are springing up around the country, enabling streaming video, social media posts and storage for enormous volumes of business data.

Oregon gets an outsized share because of the state's favorable tax climate: The state has no sales tax on the high-end computers that run server farms, and Oregon allows cities and counties to exempt those computers from local property taxes.

The pace of expansion stopped last fall, though, when an Oregon Supreme Court ruling suggested data centers could eventually be subject to additional taxes – including the value of their owners' brands.

When the Legislature convened last fall, lawmakers made restoring data centers' tax assurances a top priority. And that opened the door to a building boom across rural Oregon.

Already this summer, Google has won a tax deal for a new data center in The Dalles, and Prineville officials expect Apple will soon start work on a second large facility there. Amazon is building a complex of data centers at the Port of Morrow, and has said it may erect as many as 11 there.

Data centers have considerable leverage with local governments because they bring relatively large investment to small towns and because they can operate just about anywhere. From North Carolina to Iowa to Washington and Oregon, they gravitate to small towns where land and power are cheap.

Taxes would be server farms' biggest operating cost because it can cost $1 billion or more to equip a facility with high-end computers to store and process all that information. From coast to coast, though, state and local governments have wiped away sales and property taxes.

Facebook's current tax deal has saved the company more than $30 million over the past three years.

While data centers don't provide many jobs – there are just 147 people working for Facebook in Prineville – they have a disproportionate impact in small communities hungry for new industry. If it builds the third facility, Facebook says its total investment in Prineville will be $650 million – excluding hundreds of millions of additional dollars spent on the computers inside the buildings.

In Crook County, where Prineville is located, information sector jobs pay an average wage of more than $200,000 annually. That's only for direct employees. Security workers and contractors make far less. For reference, though, nearly half of all jobs in Crook County pay less than $15 an hour.

Facebook's current tax deal requires the company to pay local governments $110,000 annually in lieu of their property taxes. The new, 15-year deal requires Facebook to pay an additional $190,000 each year if it proceeds.

That compares to the third deal Google just signed in The Dalles, which requires the company to pay $1.45 million up front and at least $1 million more annually.

Additionally, Prineville receives $200,000 annually from franchise fees generated by Facebook's electricity use, according to the company. That's equal to about 4 percent of the city's annual budget.

The new data center would be 487,700 square feet, according to Facebook, compared to 355,000 square feet in Facebook's Building 2 (Building 1 is slightly smaller). The company says the additional space will make room for more computers and more electrical equipment.

Facebook draws water from an underground well and the city says its operations are unaffected by drought. However, Prineville and Apple are exploring the possibility of using reclaimed industrial water, which would create additional data center capacity. Facebook says it wants to participate in that program.

If Facebook proceeds this will be the company's last large data center on its current property in Prineville – there's no more room. But vacant land is abundant on the hill overlooking town, so Facebook would have the option of acquiring more should it choose to expand further.

Update: This article has been updated with additional information about the Facebook's Prineville operations.

©2015 The Oregonian (Portland, Ore.). Distributed by Tribune Content Agency, LLC.

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