Server farms are supplanting scrub brush and cornfields, underwritten by small-town tax breaks.
(TNS) -- Picture the biggest Costco you've ever seen. Double it, take out all the shoppers and clerks, replace the stacks of bulk toilet paper with banks of thousands of faceless, high-end computers. And turn off the lights.
This is where your Facebook status updates live. Your family photos, pithy political commentary, that picture you liked of your aunt's dog.
They're all in colossal warehouses on a bluff above this high-desert Oregon town, where computers labor all day and night churning out Facebook status after Facebook status.
Your iTunes songs are in Prineville, too, in an Apple data center across the highway from Facebook. Your Gmail is 100 miles north, overlooking the Columbia River in The Dalles. Amazon is hosting your Netflix movies out near Boardman.
It's the same story in small towns across the country, from Prineville (Population 9,300) to Altoona, Iowa (14,500) to Maiden, North Carolina (3,300).
Server farms are supplanting scrub brush and cornfields, underwritten by small-town tax breaks. Those tax deals, collectively worth hundreds of millions of dollars a year, quietly helped finance a new industry that formed from an unlikely pairing of rural America and Silicon Valley.
Cloud computing has transformed the Internet, enabling the storage of vast amounts of information and its dissemination just about anywhere, at any time. It's why we have social networking, free email, streaming video and music.
It's the story of big tech companies that have the world at their disposal and can put their computers almost anywhere. And it's the story of fading rural America, which has few other options and leaps at the chance to bring even a few dozen jobs to town.
No one else wants to move their businesses out among the junipers and sage, so small towns and rural states are content to cut a deal with the world's wealthiest companies for whatever they'll bring to town, on whatever terms they'll bring it.
"If you can't spot the pigeon in the poker game, you're probably it. They don't bluff," said Crook County Judge Mike McCabe, a rancher notorious in Prineville for his folksy aphorisms. "They didn't get to be trillionaires because they're fools with money."
Nearly half of the states have tax exemptions carved out specifically for data centers, an industry that may spend $1 billion on computers to run a facility that employs fewer than 200. At least eight states, including Oregon and Washington, have enacted or expanded incentives for the industry this year alone.
It's state versus state, and sometimes town versus town. Before choosing Prineville, Facebook considered building in Enterprise, Oregon. And the company said it had a Plan B in another, unnamed community if it hadn't won another tax deal for its next Prineville data center this summer.
Oregon tax incentives saved data centers more than $30 million last year alone. Those tax breaks, and the absence of a state sales tax, makes this an especially attractive destination for data centers. But it's not alone.
Server farms have to be distributed geographically so they're close to the people using the data. Even electrons take time to travel, and over large enough distances that time would become noticeable to Internet users.
Since Facebook built its first data center in Oregon, it's put similar facilities in Iowa, North Carolina and Sweden, and it's planning one in Texas.
The information is distributed, too, with each facility backing up others so no one's status update gets lost and no one's iPhoto vanishes. Facebook has a "cold storage" facility adjacent to its main data centers in Prineville where it archives older, rarely viewed material. It's all still there, but it's on ice – using very little electricity – until it's needed.
Facebook has spent nearly $800 million since 2010 to build and equip two giant data warehouses on the hill above Prineville. It spends another $12 million a year to power and cool all those computers. Work begins this fall on a third data center, Oregon's biggest, 40 percent larger than the last.
Even more striking than the buildings' sheer scale is the lack of people.
Facebook has fewer than 150 employees and contractors in Prineville – the computers are managed from corporate headquarters in Menlo Park, California. Most of those in Prineville handle security or are relatively low-end service techs who swap out hard drives or servers when they go bad.
For this, Facebook won property tax exemptions that cover its land, buildings and – most importantly – computers. The breaks saved the company $30 million the last two years alone, and those savings will balloon when the third data center opens.
Thirty million for 150 jobs might strike some as preposterous, especially considering the recipient. Those data halls hold the snapshots and ephemera of a billion lives. Facebook's profits were nearly $3 billion last year. The company is worth $264 billion altogether.
But walk outside the data center and take a look at Prineville.
It's gorgeous country. Scrub brush for miles in every direction, leading out to a distant array of Cascade Peaks under blindingly blue skies. There are a handful of sheet metal warehouses. Semis roar by on the highway.
There's little else.
Prineville started as a timber and cow town. The mills sustained the town in the first half of the 20th Century – Prineville built its own short-line railroad in 1918 when the long-haul route bypassed the town – augmented in the second half of the century by Les Schwab Tire Centers, a homespun empire of retail outlets. A high school diploma would get you a job and a living wage in a mill or tire shop.
"You showed up for work, you had your lunch, you had your gloves," said McCabe, 64. "They took care of you."
Not any more. The timber mills all closed, and Schwab moved its headquarters 30 miles down the road to Bend in 2008.
So Crook County was already reeling when the Great Recession hit, clobbered by Central Oregon's deteriorating economy and evaporating construction jobs in Bend. Crook County suffered more during the recession than anywhere else in the state. Unemployment peaked near 20 percent and the county's population fell by nearly 14 percent as people fled in search of work elsewhere.
That's just about the moment David Aaroe came to town. A vice president at Fortis Construction in Portland, Aaroe says he flew more than 330,000 miles last year, shuttling between economic ministries in European capitals and a small town above the Arctic Circle.
A rock climber and horse wrangler originally from Lexington, Kentucky, Aaroe's job is to find places like Prineville for big tech clients. He arrived in Prineville in blue jeans, a shiny belt buckle and a pair of Ranger boots.
"In a room of a thousand you couldn't pick him out in a thousand years," McCabe said. "He just fit right in."
Like a modern-day Harold Hill from The Music Man, Aaroe offered a small town a lifeline, or at least something to grasp at.
"Prineville, we took a hit to the liver, so to speak, and so, from my perspective, there was no downside risk to giving them what they wanted," said city manager Steven Forrester, a former millworker and manager.
Really, data centers just want three things from a site: Cheap power, cheap land and, above all, no taxes. Power rates and land prices are largely beyond the purview of local governments. Taxes are another story.
"It ends up being the only thing they would have control of," said John Lenio, an economist for the real estate firm CBRE,?which has studied data-center siting extensively.
States or local governments could, of course, refuse to offer tax breaks. But virtually all big data center projects follow the money.
"The only way one state could do anything with incentives is if all the others did," Lenio said. "It's an all or nothing game."
Data center construction brings hundreds of temporary jobs to Prineville. That work, which has gone on intermittently for five years, appears poised to continue with Facebook's new project and construction quietly under way to expand Apple's site across the highway. Apple bought an additional 200 acres in September, but hasn't said what it will do with that property.
Some of Prineville's data center workers come from outside the region, but many are alumni of Les Schwab or local manufacturers. Facebook says 85 percent of its employees and contractors live in Crook County.
Joblessness in the county has fallen dramatically, to 8.7 percent, now only modestly higher than the statewide rate.
Data centers are a small piece of that, according to state economists, who point to a broader rebound in central Oregon's construction industry. But it provides a kind of work no other industry does.
The Oregon Employment Department . Those jobs pay an average wage of $225,000 a year in a county where the mean is under $42,000. That means disposable income that helps prop up the local economy in a range of other ways, and it means a new skill set in a place that badly needs one.
"We think we have an opportunity to grow that sector of the economy," Forrester said.
Les Schwab and Facebook connect Prineville’s past and future A look inside Les Schwab and Facebook, which each operate massive warehouses on opposite sides of the Ochoco Highway.
Facebook's electricity use may be the biggest single boost to Prineville – it spent $12 million on power last year, generating $600,000 in franchise fees, nearly one-twelfth of the city's general fund. Facebook expects that total will increase by 50 percent when the new data center comes online, and a subsequent expansion by Apple could make that franchise revenue one of Prineville's key funding sources.
"The dollar amount of tax breaks relative to jobs is not very good. At the same time there's kind of a different perspective out in the rural areas," said Tom Potiowsky, chairman of the Northwest Economic Research Center at Portland State University. and Oregon's former state economist.
"It's tough to make the statement that they're giving away the store to these data centers, just because of the situation in rural areas," Potiowsky said. "What else might come in there?"
The equation may change if and when there are alternative uses for a site.
Google built its first corporate data center in The Dalles back in 2006, lured by a tax deal like the one Prineville gave Facebook. As in Prineville, The Dalles was reeling from losing a major economic engine – an aluminum smelter, in this case – several years earlier.
Google's 2006 tax deal in The Dalles created a template for Amazon, Apple and Facebook to follow in other parts of Oregon. Nine years on, though, there's growing ambivalence about Google's tax breaks.
When the company sought to buy land this year for a new data center at the Port of The Dalles, port commissioner Mike Courtney voted against the deal.
"Google is a great company. I don't have a problem with Google," Courtney said.
The issue, he said, is The Dalles is hemmed in by the river, designated farmland and the Columbia River Gorge National Scenic Area. The port had just finished adding 48 acres of industrial land, then promptly sold half of it to Google. Courtney said that puts the city at risk of being too dependent on a single employer.
"My general feeling is we're not following our plan. My concern is going back to having the big gun in the neighborhood and not that many jobs," he said. "When aluminum closed, it had a devastating impact on our community. I don't want to see it happen again."
Google's latest tax break won unanimous support from Wasco County commissioners and most of The Dalles' city council, but a new councilmember, Taner Elliot, voted against the pact.
"We all want Google here. They've done great things for our schools and other things in the community," Elliot said.
He worries that Google might keep its tax breaks indefinitely, regardless of what the original deals call for. He unsuccessfully sought to add a provision to the latest agreement that Google would not seek an extension of existing tax breaks, or to replace them with something similar.
"We're willing to wait for our money," he said, "but we want to be sure we have that money in hand."
Prineville Mayor Bette Roppe has said she similarly expects Facebook's data centers to come onto the tax rolls when their 15-year exemptions expire. The mayor of Altoona, Iowa, says he expects the same thing to happen with Facebook's tax breaks there.
It may all be wishful thinking.
In each case, it may be hard to imagine data center operators accepting significantly higher operating costs for aging facilities when they could build a brand-new server farm somewhere else without the taxes.
Forrester, Prineville's city manager, concedes the point but says there's a potential middle ground. If Facebook and Apple weren't willing to pay full freight for the hundreds of millions of dollars worth of computers inside their data centers, they might be willing to start paying for their land and buildings.
"The value of the land now is tremendous," Forrester said. "I have a high level of confidence we will see a significant level of tax growth when those roll off."
That may be. In both Prineville and The Dalles, though, worries persist the data centers will eventually just leave town, as taxes or technology change.
"We're going to have the largest haystack facility in the western world," said McCabe, the county judge, "if they leave."
©2015 The Oregonian (Portland, Ore.) Distributed by Tribune Content Agency, LLC.