SPEAKERS John DeVoe, Sarah Farooq, Meg O’Neill, Mike Rogoway
[Sara Farooq] 0:00
Welcome to the Berkeley Technology Law Journal Podcast! I’m Sarah Farooq.
In today’s episode, we will be discussing issues at the intersection of technology and the environment and the laws governing this space. Specifically, you will hear about the impact data centers have on the small towns they inhabit.
When talking about data centers, one might not think there are big environmental impacts beyond energy use. But as you will hear more about in a moment, the cooling technology used in data centers is extremely water-intensive. Data centers house the massive servers which store the digital data we create online. They are a critical part of the digital business infrastructure and as the digital business expands, so do the data centers. This expansion translates into an increase in water consumption by the data centers, which can be a serious draw on an area’s water supply.
Today we will be focusing on one of the tech industry’s favorite places to locate data centers, Oregon.
We will be hearing from two very distinguished guests who have been studying this issue. They will help us understand the tech industry’s dependence and impacts on Oregon’s groundwater and rivers. We will also discuss how tax regimes and water laws in Oregon have developed over time, making it a hub for data centers.
Junior Podcast editor Meg O’Neill will be first talking to John DeVoe. Currently, John is a senior fundraiser and advisor for Water Watch, an environmental organization that has been protecting and restoring bodies of water in Oregon for the last 38 years. John has a law degree from Indiana University in Bloomington, Indiana, and a B.A. in Philosophy from Columbia College in New York. He has served on the steering committees of various water conservation associations. John’s work centers on preserving Oregon’s water and connected ecosystems, and part of this work has involved assessing the impact that data centers have on local water sources.
Our second guest is Mike Rogoway. Mike is a journalist with the Oregonian. He has an MBA from the University of Washington’s Foster School of Business. Mike’s work focuses on technology and its impact on communities. He was a 2008 finalist for the Pulitzer Prize for Explanatory Reporting. In 2023, he received the National Headliner Award for “The Data Centre Next Door,” a piece of investigative reporting on Google’s data centers in Oregon.
Meg spoke to Mike and John about the background of water rights in Oregon, how Oregon became a popular destination for big tech, and the recent lawsuit involving Google and the city of The Dalles. You’ll hear them talk about the economic benefits that accompany big tech’s presence, the fight over data transparency as it relates to environmental impacts, and some avenues for a more sustainable method of conducting business.
We are delighted to have had Mike and John here with us and we hope you enjoy this episode of the BTLJ Podcast.
Interview with John DeVoe
[Meg O’Neill] 3:29
Hi, listeners. I’m here with John DeVoe of Waterwatch in Oregon. Hi, John.
[John DeVoe] 3:35
Hi, Meg. How are you today?
[Meg O’Neill] 3:37
I’m good. Thanks for joining us.
[John DeVoe] 3:40
Yeah, thank you for having me and Waterwatch on this podcast.
[Meg O’Neill] 3:45
My pleasure. Would you actually start us off with an overview of what Waterwatch does?
[John DeVoe] 3:51
Sure. Water Watch’s mission is to protect and restore stream flows in Oregon’s rivers for fish, wildlife, and people who depend on healthy rivers. As kind of a corollary to that mission, we also remove obsolete dams, we promote free flowing rivers, we’ve been behind a number of very high profile dam removals in Oregon, and also involved in the Klamath Dam removals that are happening now. And we also secure the balanced and climate resilient water policies and investments that Oregon needs in a climate change world. That’s that’s basically our mission.
[Meg O’Neill] 4:29
Perfect. Okay, so my first question really is just what are water rights? And what does the regulatory landscape around water rights look like?
[John DeVoe] 4:38
Well, yeah, sure. In the West, water is treated differently than it is in the eastern United States. Out West, we have basically what’s called prior appropriation, which is a first in time first in rights system. Water Rights are basically the entitlements that a Western state, the state of Oregon, or another Western State would give you, if you came in and filed for a permit to use water. We start from the proposition that, and Oregon statutes do as well, that all water from all sources of supply belongs to the public. What people acquire when they get a water right is a right to use the water. It’s called a usufructuary right–a fancy word for saying you get a right to use the water. But, it comes with some conditions. It is a form of property interest, but it’s not all the sticks in the bundle is the way we talk about it.
[Meg O’Neill] 5:36
Wow, that sounds really complex. Are there current weaknesses or loopholes in the rules?
[John DeVoe] 5:46
Oh, my gosh, how much time do we have! I mean, I wouldn’t describe those weaknesses, but I think what your listeners need to understand is that water law in the West came out of the 49er mining camps in Northern California during the Gold Rush. Robert Glennon is a famous water author. He’s described it as the law of thieves. And, that’s how you get this first in time first in rights system. And so these laws were basically created to encourage white folks to settle the West and engage in farming, mining and other sorts of extractive activities. So it’s, in some ways, a very unfair law and unjust law, and it doesn’t fit in a lot of ways with current needs, current societal needs. It certainly doesn’t fit with environmental needs. When we’re in the midst here of a mega drought, that may be the most serious drought that we’ve had in the West in 1200 years, there are questions whether this system, this prior appropriation system is really the best way to handle the situation. And so you can describe that as a loophole if you want, or you can describe it as an omission. But yes, and then there are politics and the politics around water are very fierce. Sometimes the laws are in second place to the politics. There are some good laws on the book, but there’s a lot of discretion at the state agencies that manage and enforce these laws and manage the water out on the landscape. The bottom line is that the oldest water right holders tend to get their water with some regularity, the more junior water right holders may or may not get their water, and there isn’t a lot of active management in light of conservation needs, in light of the needs of salmon, steelhead, aquatic species, the needs of rivers. All those considerations came very late in the system. That’s a long winded way of saying yes, there are some loopholes, but there are also some structural deficiencies in the laws that exists.
[Meg O’Neill] 7:55
Okay, that makes sense. Just to clarify, when you buy land in the West, you’re buying sort of the use of that water right that’s attached to the land. But are there other ways to obtain water rights?
[John DeVoe] 8:11
Yeah, water rights are what are called appurtenant to land and so you can buy water. There’s a mechanism in the law called a transfer where you can go into the state agency and move water around but you have to go through a process. And one piece of that process is to ensure that you do not injure other water rights in moving that water around. Water markets can do good things. But sometimes they don’t do good things. I mean, you have people like T. Boone Pickens coming in and trying to corner the market on groundwater in aquifers in Texas, or the Saudis coming in and trying to do similar things with aquifers elsewhere. But water is typically associated with a place of use. And if the land sells the water goes with it typically.
[Meg O’Neill] 9:03
Okay, great. That makes sense. So, I know that there are a ton of data centers on the West Coast and especially in Oregon, and that often data centers use a large amount of water. What are some of the reasons that companies are choosing to build their data centers here?
[John DeVoe] 9:22
Yeah, I think there are several explanations for it. And there are probably several that I’m unaware of that deal with capital markets and considerations in the industry that I’m simply not aware of. But, my explanation, in part, would be that the Pacific Northwest has had cheap hydropower, cheap electricity for a long time. And, obviously, data centers consume a lot of electricity. There are also considerations around tax subsidies and such, take Google in The Dalles, Oregon, which is a town about 80 miles east of Portland on the Columbia River. Google received on their first data center there $260 million, plus or minus, in tax subsidies over 10 years from the local authorities with approval from the state to locate there. And so, I think you get into these situations where places are competing for what they perceive as big employers, big injections of capital and economic activity into their communities. And it becomes kind of a race to see who can land these facilities. I would also suggest that for the facilities that are using water as a cooling mechanism in their facilities, there are perceptions that the regulatory oversight is not very onerous for industry in terms of getting water. And so there can be runs on attempts to obtain those entitlements. And we’ve seen it in say the alfalfa business, where a lot of interests will hear that Oregon’s groundwater is open for alfalfa production. “Let’s all move there and, and grow alfalfa!” You can go down around the Malheur National Wildlife Refuge, and you will see a lot of center pivot alfalfa production using fossil groundwater. And this is because the state was not doing its job in terms of ensuring that it only issued permits for sustainable use of groundwater. I would suggest that some of these centers locate here because the perception is that there’s a lot of water available for their use, if they choose to use that technology to cool their servers. Not all of them that have located here have done that, but some of them have, and they’ve been able to, I mean, Google has been able to obtain the water it thinks it’s going to need for expansion and its existing operation in The Dalles.
[Meg O’Neill] 11:59
Okay, so big water consumers are moving in. Can you talk about how that impacts the ecology of the local area? And also, what are companies and regulators doing and what should they be doing to mitigate those impacts?
[John DeVoe] 12:20
Yeah, I think there are a number of impacts of some of these operations locating where they are and choosing this technology. What you have to understand is that almost every basin in Oregon is over allocated in the dry months of the year. And that’s largely true of basins across the West. What that means is the water regulators have given away more permits for water than actually exists in many of the streams across the western landscape. So you can have a paper water right, but you may not get any actual wet water. Now Google is located in The Dalles, Oregon, and they’re getting their water from the city of The Dalles. Part of the city’s water portfolio is groundwater and yet the region around The Dalles, because of overpumping historically, has been designated a critical groundwater area in the State of Oregon and it was one of the first. So what you have is water poor regions and then you have new industries locating there, which add to the stress on those watersheds.
[Meg O’Neill] 13:27
Okay, let me make sure after this right. The Dalles uses groundwater, at least in part, and groundwater has already been overpumped even before the Google data centers moved in. And the data centers present a growing demand for water to cool their servers. What does the city do in this situation?
[John DeVoe] 13:52
Google has paid the City of The Dalles over $28 million to beef up its water supply. And one way the City of The Dalles has done this is it has gone to a very sensitive stream in another watershed. It’s called the Dog River, and it’s a tributary to the Hood River, which flows into the Columbia River. The Dog River supports multiple runs of Endangered Species Act-listed salmon and steelhead. And The Dalles through Google’s largesse has decided to double the amount of water it takes from the Dog River. If it does that, the Dog River is going to go dry up to eight months out of the year, and the salmon and steelhead that use that river are going to be in trouble. So, they have encouraged The Dalles to expand its water supply, and The Dalles has chosen to do that by going to a very sensitive source that supports imperiled salmon and steelhead. In doing so, it’s putting those fish at risk. So that’s just a small example. I think what that shows you is you have this global economic industry—high tech, data farms, server farms, whatever you want to call it—that is serving people all over the planet. And they’re coming to a very localized watershed and saying, “We want to locate here.” There have been some studies done, and there’s a letter out there, from a couple years ago, that tried to quantify the effect of data farms on waters, their water footprints and such. And the conclusion, in part, was that these server farms are having a disproportionate dependency on scarce waters in the Western US. It also concluded many of the watersheds in the western US exhibit high levels of water stress, which is exacerbated by data centers. And they factored in not only direct water use and cooling, but also indirect water use in terms of generating the electricity that powers the server farms, which consume a lot of electricity. So if you look at the water footprint of these operations, it’s a big footprint. They would say, “Well, we have to balance carbon emissions with water use with other considerations.” That’s true, but I think looking at water is not like looking at “Should we locate in the Columbia River Basin?” I think you have to look a lot more local, and say, “What are the impacts of putting this facility right here on the watersheds that it’s actually going to get its source water from?” And sometimes those impacts can be pretty high.
[Meg O’Neill] 16:36
Right, that makes sense. One of the things I discovered while looking into this topic was that the amount of water that data centers actually used, while it’s far from insignificant, it actually really pales in comparison to the amount of water something like agriculture uses. But when you look at it on a more local scale of where tech companies are choosing specifically to build, that is when you see much bigger negative impacts and those impacts spreading to neighboring communities. Is that accurate?
[John DeVoe] 17:13
I think that’s roughly accurate. I think it’s analogous to the situation with climate change, where you have a new impact landing on top of existing inequities and emissions and the effect of that can be pretty severe. If you have a new use coming into a basin that’s already fully appropriated and too much water has been promised to too many interests and now you have a new very powerful tech interests like Google or Amazon or Apple or Facebook or whoever it is coming in and demanding more water, they’re gonna get theirs and the losers are going to be fish, wildlife, the environment, and sustainability in general. And it’s not necessarily because their use is so gigantic, it’s just that we’ve already baked in so much use that these watersheds really can’t handle a lot of additional use.
[Meg O’Neill] 18:09
That makes a ton of sense. So then what sort of policies would Waterwatch recommend a tech company implement if they were looking to build a new data center looking for water rights?
[John DeVoe] 18:26
Well, I’ll say they’re not given us a call upfront and asking for our opinion. But I think there are things these operations can do. I think they could commit to having a net zero impact on the watersheds where they get their source water. The Googles of the world are wealthy enough to go out and retire some water rights in these watersheds equal to or maybe there should be a multiplier to the amount that they intend to use. And they could easily do that. Now I do see talk about mitigation. Amazon claims in the Umatilla Basin out there in the Columbia that it’s mitigating its use by putting water into irrigation district canals. To me, that’s not really mitigating; what that’s doing is expanding agriculture. It’s not doing anything for the source waters from which Amazon extracts its water to use in its operation. And I think that’s another thing that can be done is, when we’re talking about mitigation with respect to these operations, they ought to be focused on the source waters where the water comes from that is used in the operations and the fish and wildlife and ecological values that get impaired because of the additional use. That’s what I would term as real mitigation, and not some out-of-kind mitigation that really has nothing to do with the source waters. So I think a mitigation obligation, and then a multiplier on that would be great. I think they also ought to have more of a microscope when they talk about locating these facilities. Because if you look at the Columbia Basin, that’s too large a focus in terms of what are the impacts going to be of locating a facility. Columbia Basin—it could be all over the place, but I think you need to look at the watersheds that are involved in providing the source waters, and those that are involved in generating the electricity that these facilities use, as a couple suggestions.
[Meg O’Neill] 20:31
Those are great. I am always so grateful when someone has a real answer to that question of what can we be doing differently? A follow up to that. Do you see companies actually making those changes and making those choices in the future?
[John DeVoe] 20:53
I believe in the soft path for water is Pacific Institute and Peter Glick have talked about that a lot. Basically, we don’t necessarily have to use water in our operations. What we’re interested in is the end result, not the use of water. And so let’s design operations and plants and everything we can to not use water. And I think there is potential for a lot of conservation of water. You can look at the municipal experience in the West, where you have the city of Seattle, which uses less water now than it used in the 70s, even though it’s grown by more than over half a million people. If people commit to a conservation goal and stick to it and account for things correctly, we can achieve a great deal of conservation. And these centers don’t necessarily need to use cooling water to cool the servers. There are other ways to do it. And some of those examples are in Oregon. So I think if we follow the soft path, and we try and use less water and look at the demand side of the equation, rather than always looking at the supply side of the equation, I think we can stretch what we have quite a distance.
[Meg O’Neill] 22:09
That sounds great. Well, thank you for your time today, John.
[John DeVoe] 22:15
Yeah you’re welcome. Anytime.
[Meg O’Neill] 22:25
That was John DeVoe of Water Watch. Meg will now continue the conversation with our second guest, journalist, Mike Rogoway.
Interview with Mike Rogoway
[Meg O’Neill] 22:40
So I’m here with Mike Rogoway, who is a business writer at The Oregonian. Hi, Mike.
[Mike Rogoway] 22:46
Hey, how are you?
[Meg O’Neill] 22:47
I’m doing well. How are you?
[Mike Rogoway] 22:49
Very well, thanks.
[Meg O’Neill] 22:51
Can you give us a bit of an overview on the work you’ve done on water and tech in Oregon?
[Mike Rogoway] 22:58
Yeah, we’ll start by talking a little bit about Oregon, a little bit of technology. We think of Oregon as a place where it rains quite a bit. But that really depends on where you are. On my side of the Cascade Mountains here in Portland, we do get a lot of rain. But, on the other side of the state, it’s bone dry. We have high deserts, we have large, large agrarian areas, agricultural areas that maybe don’t get as much water as all the demands put on the areas might like. And that’s everything from farming to fishing to technology. We think of technology too as software and things like that. Oregon’s specialty is computer hardware. This is where Intel’s largest operations are, their most advanced factories are here in Oregon. And it’s a big destination for data centers. Google built its first large data centers here, so did Facebook. Apple and Amazon have huge installations here, as does LinkedIn, Twitter, Adobe. So all these things use a great deal of water in either the manufacturing process for Intel and the other chip makers, or in cooling the data centers, when it comes to the data center operators.
[Meg O’Neill] 24:24
That makes sense. Do you know how Oregon became such a hotspot for data centers?
[Mike Rogoway] 24:29
Yeah, there’s a few things to think about with that. Data centers want cheap and dependable power. The servers have to be on all the time. And they have to be cooled to keep them cool. And so you also need water. And we have had that historically, although it’s harder to get in some places than others as we mentioned. You also need fiber optics, so that it can be connected to the internet, and through various legacy projects there was fiber available even back around the turn of the century in fairly remote areas, the beginning of the 21st century, I mean. And you also need to be near population and technology hubs, because even electrons take time to go from place to place and you want your data centers to be responsive. So, being not too far from the Bay Area, not too far from Seattle, and in a place where water and things like that and power are available, we were a good destination. But there was another consideration, and it was just as important or perhaps more important than any of the others. Back in the 1980s, Oregon, like a lot of other states, created what they called an Enterprise Zone Program; it’s a set of property tax incentives for small manufacturers. You put them in distressed communities, rural, small towns, and try to attract manufacturers by giving them a temporary exemption on their property taxes. But lawmakers didn’t put any cap on the size of those tax breaks. So when the data centers industry emerged two decades later, they looked up at Oregon and said, “Wait a minute, we can get enormous tax breaks.” So Amazon’s tax breaks are worth billions of dollars, and also our tax breaks aren’t awarded statewide. Each community chooses how much property tax to exempt. These computers are huge and expensive, or the data centers are huge, and the computers are expensive, and they’re packed with thousands of servers. So there is a big incentive to get as big an exemption as possible, because Oregon, like most other states, taxes the property inside data centers, as well as the land and the buildings. So those property tax exemptions, they save tens or hundreds of millions of dollars a year, or over the life of the exemption, billions of dollars for these really large projects. We also have no sales tax in Oregon, which is another built-in incentive because those servers, as they say, filling a data center cost hundreds of millions or billions of dollars for a campus of data centers. And, if you’re not paying sales tax on those servers, you’re saving a lot of money.
[Meg O’Neill] 27:11
Interesting. I knew that Oregon didn’t have sales tax, but I guess I didn’t consider the tax breaks that that leads to if you’re buying all of your servers in Oregon.
[Mike Rogoway] 27:24
Yeah, it’s a big consideration. And it’s part of the reason Oregon has been a manufacturing centric state at a time when other parts of the country have moved away from manufacturing or have lost their manufacturing base. Oregon’s held on to it in part because it’s a cheap place to buy and install equipment.
[Meg O’Neill] 27:41
That’s a big incentive. Okay, so switching gears, how much water does a data center use?
[Mike Rogoway] 27:51
Well, it varies. Some don’t use very much. It depends on the cooling system that they’ve chosen. They can use something more traditional, like the air conditioning system you might have in your home, which is very electricity intensive, but doesn’t use a lot of water. But for instance, Google out in the community called The Dalles, maybe 60 miles from here in Portland at the Columbia River. In 2021, they used 355 million gallons of water. And just to give you a sense of scale, that’s 29% of all the water used by everyone in the city, and it’s three times more than Google had used five years earlier. Now that was 2021 numbers, the 2022 numbers didn’t change very much. But Google is building two more large data centers in The Dalles, they have three now. So the water use could increase considerably in the years ahead.
[Meg O’Neill] 28:40
Yeah, I can see that happening for sure. So this is a leading question, but how do we have Google’s water usage data available to look at?
[Mike Rogoway] 28:54
Well, so if we go back to 2021, our readers out in The Dalles said, “Oh, Google is seeking a lot more water from the city, and they want a new water deal to help finance that.” And I thought, well, we should understand that. So I called the water utility manager for the city, a fellow named Dave Anderson, and asked him about the deal that Google was seeking. And he walked me through it, and that was great. But in a poor example of reporting, I forgot to ask him how much water Google was using at the time. And as soon as I hung up, I’m like, “Oh, I forgot to ask the most basic question!” So I hopped on the email and sent Dave a note and said, “Oh, I forgot to ask, so stupid. How much water is Google using now?” Well, that email set off a chain of events then. Google asserted that its water use was a trade secret and instructed the city not to tell us. Oregon has a sort of unusual public records process that the city said, “Oh, it’s a trade secret. We can’t tell you.” So we appealed to the county district attorney and said, “They have no case here. They have to give us this information. They’re a public utility. And you know, this is public information.” And the district attorney agreed and ordered the city to hand over data about Google’s water use. Well, Google then instructed the city to sue us to prevent us from getting access to that data, which is what Oregon public records law requires if a city wants to block the records. So Google said it was contractually bound to do what Google ordered, and did in fact, sue us. Well, we fought the suit and a nonprofit organization called Reporters Committee for the Freedom of Press stepped in and provided legal representation for us to limit our legal exposure. We felt strongly from the beginning, as did the RCFP, that the law was on our side. It took about a year, but Google gave up and they agreed to give us everything we wanted, as well as pay for the city’s legal costs and our legal costs. And at the same time, they disclosed Google’s water use in The Dalles. They reversed a long standing policy of keeping all their data center water use secret wherever they could, and began disclosing it everywhere.
[Meg O’Neill] 31:12
Okay, can you break it down for me? Why is water use a trade secret?
[Mike Rogoway] 31:19
Yeah, it’s a little opaque. Google’s argument—and it’s really hard to know what Google was arguing here, because as I said, we felt like their legal case wasn’t very strong. And it wasn’t really clear why they had instructed the city to sue us. But in their legal documents, what they argued was that if you knew how much water that they were using, that you would be able to reverse engineer something about their data center design in The Dalles. Competitors then maybe could somehow copy the operations of their data centers and gain a competitive advantage against Google. Google had in a few prior occasions disclosed data center water use in other locations in the country when faced with similar legal challenges. So it wasn’t really clear what about the data centers in Oregon were secret, or even if they’d really thought it through. This information is generally public record, I’d never had any trouble getting it before. A few years ago, Intel built a huge water recycling plant that cost hundreds of millions of dollars in the city of Hillsboro, just west of Portland. We asked for Intel’s water use. Nobody complained. When I asked for Facebook’s water use in a town called Prineville, which is south of The Dalles where Google operates, nobody batted an eye, they just handed it over. So it’s not really clear why Google thought the circumstances were different. But as I say, after a year, they gave up and provided us what we asked for.
[Meg O’Neill] 32:51
So apart from competitors being potentially able to reverse engineer their cooling technology, are there other downsides associated with releasing water consumption data?
[Mike Rogoway] 33:05
I wouldn’t think so except it is bringing awareness to the fact that data center water use is an issue. As I say, it depends on where you are, but data centers are often located in places where there might be cheap power or good tax breaks, but maybe not a lot of people. You don’t need a lot of employees to run a data center. They’re mostly empty, there’s security personnel and a few technicians. But mostly they run themselves. And so, there might be growing awareness to their natural resources impact around water, although, of course, resisting it brought far more attention than just handing over the water use would have, because there was a lot of publicity around Google’s failed legal fight against us, as well as ultimately when they gave up and handed over their water data on the amount of water they use. If they were trying to keep that water use secret to prevent themselves from getting a black eye, it certainly backfired. But I don’t know that’s what they were trying to do. It’s mysterious to me. It was never really clear. If we take them at face value, they thought it was a trade secret, perhaps they’ve changed their mind. Or, perhaps they’ve just acknowledged that that’s going to be inevitable that people are going to be able to find this information out.
[Meg O’Neill] 34:20
Okay. Yeah. So to switch gears a little. I know you’ve done some reporting on tax breaks and job creation, and other potential benefits to the cities that these data centers are built in. Can you talk to me about that?
[Mike Rogoway] 34:41
Yeah, well, there are real benefits from the data centers, real economic benefits. There’s no doubt. I think the policy question is whether the size of the tax breaks are commensurate with benefits, or whether the data centers might operate there anyway, for other reasons, like no sales tax or a favorable power mix or power availability with or without the tax breaks. The benefits are real, but they vary by community. For instance, in Hillsborough, west of Portland, it’s a large suburb. There’s a cluster of data centers that consume a lot of the city’s industrial land. And Twitter, for example, gets tax breaks worth five to six million dollars a year there, but they have just 18 employees. So they don’t contribute much to the city’s employment base, and they take a lot of industrial land and they get a big tax break. But in a smaller community like The Dalles, which we’ve been talking about which has 16,000 residents, that’s where Google is. Or Morrow County out in Eastern Oregon, that’s where Amazon is, they have 13,000 people. A few 100 employees or several 100 employees have a real economic impact. So there’s a real incentive for these small communities to land these data centers, even a few hundred jobs are very meaningful there. The problem is that all these communities are fighting for the same thing. And so the neighboring communities of Morrow County where Boardman is and Umatilla County right next door, Amazon quite conspicuously plays one off the other. And they say, “Well, they’ve offered these tax breaks in one community, if you don’t give us the same thing we’re going there.” And so they kind of create a race to the bottom situation. And from a state policy perspective, it’s a little peculiar to pit counties, your own counties, against one another to see who will give away the most money.
[Meg O’Neill] 36:32
Can you speak to those policy reasons at all of having counties set their own tax rates?
[Mike Rogoway] 36:38
I don’t think people considered it. It’s a local control issue. And it’s something that local counties feel very strongly about. That they should be able to choose for themselves what kind of industries are most attractive and most useful. So they should be able to set their own policy for how big of a tax incentive they should offer. I think nobody considered in the 80s, what they were talking about were tax breaks in the tens of thousands of dollars, not in the hundreds of millions or billions of dollars. And because nobody put an upper limit on it, and nobody contemplated the data center industry back in the 80s, it was 20 years off, 25 years off at the time, and so nobody considered that a small town would have a situation like this. Again, that there are real benefits. They don’t excuse all the property taxes. Amazon, for example, in Morrow County, it’s still the county’s largest taxpayer, even though they’re saving 60 million or something a year in property taxes. They’re still paying something. And in some other communities, the data centers pay a franchise fee on the electricity they use. And where they generate that franchise fee on the electricity they use, that becomes an important part of the city’s general fund. So there are real benefits from it. There’s no doubt—real economic benefits. Again, the question is, could they get those benefits without giving away tax breaks that are quite this large?
[Meg O’Neill] 37:58
Right. Yeah. I’m guessing they probably could at this point, especially now that the data centers are actually built there. But I’m assuming there’s a contract holding them into their current tax rate.
[Mike Rogoway] 38:08
Yes. And these enterprise on tax breaks, they go for fifteen years. And I think it’s an open question what will happen at the end of fifteen years. Will these data centers roll on the regular tax rolls and start paying huge tax bills? Or, might folks demand new tax breaks or shut down old data centers and just run more modern ones that are much cheaper to operate because they have a lower tax burden? We have one example of that so far in Oregon, one major example, and that’s Google’s first data center, which they opened in 2006 in The Dalles. It came on to the tax rolls a year ago. It is paying regular taxes out there. But it’s an open question. So that’s adding a few million dollars to the city’s general fund. It’s an open question, though, what happens when these two new data centers open, which have property tax exemptions for fifteen more years. Will Google keep paying full freight on this fifteen or twenty year old data center? Or will they shift the work to the new tax exempt data centers? We’ll just have to watch and see.
[Meg O’Neill] 39:15
And then so the land?
[Mike Rogoway] 39:16
Well, they could leave it idle or empty or perhaps they could put fully depreciated servers in there that don’t have a tax burden. Or perhaps they could sell the land or demand a new tax break. I think there’s all kinds of things that are possible. Or they may just become huge tax payers, and you may end up with these small communities with huge property tax bases. It could happen. We’re many years off from getting a full answer from that question. Some of these tax breaks are brand new, so it will be the 2030s or 2040s before we really know.
[Meg O’Neill] 39:53
So I saw that some tech companies are investing in the infrastructure of the cities they’re choosing to build in. Particularly, I saw that Google is helping to upgrade the water infrastructure in The Dalles. It seems like it could be a great opportunity for a small town.
[Mike Rogoway] 40:10
That was part of the water deal that they signed, that in exchange for more water, they would pay for an upgrade in the city’s water infrastructure to make more water available. Water rights that weren’t being used at the time or couldn’t be used because it would have taken more investment, pumping groundwater down into the city’s aquifer in the wet winter months and then pulling it out in the very dry summer months. That’s going ahead, that deal was signed, and that’s happening. So it should make more water available. But it’s not like they’re pulling the water out of thin air, it’s coming from other places. And that’s the concern of environmentalists, and farmers and others out there: that it will draw down the water that’s available in the region for other purposes, whether it be fish or farming, or other industry.
[Meg O’Neill] 41:02
That makes so much sense. Can you give the argument for restricting the number of data centers that can or should be built? And can you speak to, if that should be regulated by an entity or if it should be left to market forces or possibly natural forces?
[Mike Rogoway] 41:25
Well, I think it’s good to think about what data centers do for us and how we use them. So right now, people listening to this podcast are streaming it from a data center. Whether it’s podcasts or Netflix or YouTube or Gmail or Facebook, Instagram, TikTok, this is where all these things live. These data centers, if you haven’t been in one, the metaphor I always use is you want to take the biggest Costco you’ve ever been in, double it in size, turn off all the lights and get all the people out, then just fill it with computers. And that’s what’s in there. And we all use them. And the examples I gave are all consumers, but business relies on it increasingly, too. And it’s an efficient way for computing to operate, because they take advantage of the economies of scale. Having powerful computers centralized and optimizing their performance, their resources, that means that computers on our desktop don’t have to do all that. So there are real benefits to the data centers. I think the question before limiting them that I’d like to have is an open conversation about incentives. And I’d like to see policymakers and the public weigh in on whether or not the world’s richest tech companies, Amazon, Google, Facebook, Apple, Twitter, if they really need these incentives, or if they would be operating the data centers anyway. I think there’s a very strong reason to believe they would be operating anyway.
[Meg O’Neill] 42:40
[Mike Rogoway] 42:41
Oregon just extended its Enterprise Zone Program this last legislative session, and scores of small town city managers came out and testified to the importance of the Enterprise Zone program. But almost none of them mentioned—in fact, none of them mentioned, not one—that the primary way that these tax breaks are used are not for small manufacturers or small businesses or to lure employers, they’re used, almost three quarters I think of the tax breaks, go to the data centers, to these rich companies. And I think I’d like to see that incorporated in that discussion. And then policymakers, it’s up to them, and the public, whether or not that’s how we want to use it or not. So that’s what I’d like to see: it’s just an open and candid discussion about how we’re using our incentives, and how we’re using our natural resources. And if we decide that data centers are the optimal way to use them, fine, but let’s just make sure we’re having that open discussion.
[Meg O’Neill] 43:38
Sure, yeah. So what are some other ways that corporations can make moves to be more environmentally conscious beyond being open to that discussion?
[Mike Rogoway] 43:52
I think one thing that’s distinctive about all the companies I just mentioned, the big tech companies, Apple, Facebook, now Meta, Google, which I guess is now Alphabet, Amazon, not one of them disputes the science behind climate change. They all embrace it, and they all stress the importance of clean power. They all want to move that way, and many of them say they already have. They might be using carbon-emitting fossil fuels for some locations, but they’re building clean energy elsewhere to compensate for that. And that may be the case. When I talk to power planners in the Northwest, what I hear is that yes, they create a big new power load in our region and potentially use more fossil fuels. That’s the glass half empty. The glass half full, they say is there’s a powerful constituency, now in the region, that wants clean power. They may not have it now, but they want it eventually. And so they can provide the resources, the money to build more clean power generation and a generator. A company might not build a solar farm or a wind farm for just one customer. They may build it large enough to serve Amazon as the anchor tenant. But maybe many others will benefit from it as well. One of the main issues we have in our region is transmission; we lack transmission of the places where we generate clean power for the places where we want to use it in the Northwest. And they could create an incentive to build that transmission. So the glass half full way of looking at it is, the data centers could be a big catalyst for clean energy infrastructure in the Northwest. None of them are out there saying, “Oh, climate change is a joke, or it’s a hoax or anything like that.” They all say they believe it, and they’re committed to addressing it. It could be that commitment could pay dividends.
[Meg O’Neill] 45:42
Right. These companies do sort of seem like the players that have the power and the resources and the interest to be the catalyst that really pushes us toward a more environmentally friendly sector.
[Mike Rogoway] 46:00
It’s certainly a lot different than if you had large companies coming into the region and saying that they weren’t concerned about climate change. Having large companies come into the region and say they are concerned about it makes a difference. Now, it gets complicated because this past year, Oregon’s legislature had a bill before it that would have required data center operators to meet the same clean energy goals that other Oregon companies have to meet. Amazon lobbied heavily, spent a lot of money and successfully killed that bill. They were sort of working against it. I think what Amazon would say is the flaw was, and I think what they did say is, the flaw in Oregon’s Bill was it mandated clean energy without creating a path to get there. And I think they would be more receptive to a bill—or at least they say they would be more receptive to a bill—that provided a mechanism to support the clean energy generation and the transmission that they say their data centers need.
[Meg O’Neill] 46:55
[Mike Rogoway] 46:56
Of course, they’ve built their data centers in a region that offers big tax breaks, but not easy access to clean energy. They could have put their data centers somewhere else where there was a better access to clean energy. They didn’t. But, now that they’re here, perhaps they could work with the state on bridging that divide and getting clean energy to their facilities.
[Meg O’Neill] 47:17
Well, I really appreciate your time today, Mike.
[Mike Rogoway] 47:22
Yeah, well, thanks for your interest.
[Sarah Farooq] 47:30
This episode was brought to you by Aishwarya Athavale, Zac McPherson, Meg O’Neill, and Sarah Farooq.
[Sarah Farooq] 47:40
You have been listening to the Berkeley Technology Law Journal Podcast. This was brought to you by Podcast Editors Eric Ahern, Meg O’Neill, and Juliette Draper. Our Executive Producer is BTLJ Senior Online Content Editor, Linda Chang. BTLJ’s Editors in Chief are Will Kasper and Yuhan Wu.
[Sarah Farooq] 48:01
If you enjoyed our podcast, please support us by subscribing and rating us on Apple Podcasts, Spotify, or wherever you listen to your podcasts. Write us at email@example.com with questions or suggestions of who we should interview next.
Sarah Farooq – 48:18
These interviews were recorded on November 17, 2023. The information presented here does not constitute legal advice. This podcast is intended for academic entertainment purposes only.