INDUSTRY NEWS • ISSUE VIII, MAY 2017

Sunny Forecast for Data Center Industry in North Carolina

The following article is excerpted from a Carolinas Chapter of 7X24 interview with Christopher Chung, CEO, Economic Development Partnership of North Carolina

The Economic Development Partnership of North Carolina (EDPNC) is an organization that operates under contract with the state. We began operation in October 2014 and assumed a number of critical marketing responsibilities from the North Carolina Department of Commerce, including recruiting new industry to the state, supporting the expansion of existing industry, helping small- to mid-sized businesses increase their exports, counseling entrepreneurs on starting a small business in the state, and promoting tourism and film production. So far, we’ve hit or exceeded our annual targets across all five of these core responsibilities. So while we recognize we still have a lot of work to do, we are proud of our performance results so far.

On the general topic of data centers, certainly the state’s ability to attract high-profile projects from the likes of Google, Apple, Facebook, AT&T, IBM, and Bed Bath & Beyond has raised the profile of the state as a place that can more than meet the needs of data centers.

North Carolina already has a large concentration of data centers, with more than 45 that range from marquee large corporations such as those mentioned above to small colocation firms. We expect that presence to grow, because no one is going to be using less data in the future. North Carolina is very well positioned to benefit from the inevitable growth in business and consumer demand for the storage, management, and distribution of data.

Why North Carolina?

One big reason North Carolina is attractive to data center site selection committees is the low cost of power in North Carolina and the stability of our electrical grid. Data centers are among the most energy-consuming facilities in the world. Here in North Carolina, industrial end-users pay 6.2 cents per kilowatt-hour of electricity, and that average can drop below 5 cents if a data center locates in an area served by the state’s largest utility provider.

Our average cost of energy for industrial end-users is 8 percent below the national average, and less than in many other East Coast states. For example, industrial energy prices average 63 percent higher in New Jersey and 7 percent higher in Virginia, which is a heavy-hitter in attracting data centers.

We also have reliable power and available additional capacity. On top of our built-out transmission capacity, we have industrial-scale capacity freed up by the downsizing of our textile and furniture manufacturing sectors. Adequate capacity is critically important to companies that have located massive data centers in the state, such as Google in Lenoir, Facebook near Forest City, and Apple in Maiden.

The state also offers significantly lower construction costs for commercial and industrial buildings. Construction costs in North Carolina’s cities are up to 18 percent below the national average.

In addition, local governments in North Carolina levy effective industrial property taxes that can be among the lowest. They also offer local property tax incentives to corporate projects that make big investments.

And if a data center wants a rural site with plenty of room for large buildings and power substations, it will find North Carolina has lots of rural property that is relatively low cost. That can be key to massive projects such as Apple, which has more than 500,000 square feet of data center space at its North Carolina campus.

North Carolina is a low-risk state in terms of natural disasters. We have the second-lowest number of FEMA-declared incidents in the southeastern United States.

We also offer a strong IT workforce as well as education and research resources that complement data centers. We have top-tier universities such as Duke, North Carolina State, the University of North Carolina, and Wake Forest, which have centers, research, or programs focusing on or relevant to data management and analysis. And our community college system is responding to the need for employees critical to data centers. In 2015, Cleveland Community College in Shelby, in partnership with the Carolinas 7 X 24 chapter, launched the first mission critical operations concentration offered to undergraduate students. This two-year program leads to an associate applied science degree in mission critical operations.

And we certainly have a strong presence of corporations in the data economy. We’re home to major operations of high-profile companies that provide powerful data tools—such as SAS, IBM, Inmar, Red Hat, and Quintiles—as well as companies that rely on quick turnaround and access to growing amounts of data to remain competitive, such as MetLife, Bank of America, and Deutsche Bank.

What’s the Catch?

North Carolina’s biggest problem in attracting new data centers is primarily the intense competition with other states and the complexity of those projects. Very large data centers may prefer to expand at their existing operations rather than relocate because of the cost. However, that does position us well for growth of existing data centers in the state. And a number of communities in the state have prepared and packaged sites to offer rapid deployment of data centers.

Opportunities in Eastern North Carolina

Eastern North Carolina has many of the assets I’ve already mentioned that attract data centers, including ample land available at a low cost. As North Carolina’s statewide economic development organization, we promote the entire state for new and expanding corporate facilities, so Eastern North Carolina is always a part of our marketing activities.

In addition, specific communities and regions in the state are represented in the EDPNC’s new business-focused cooperative marketing program, which includes local economic development organizations joining us at trade shows and other events that target the IT sector.

The EDPNC’s cooperative marketing program also enables our local partners to join us for one-on-one meetings we arrange with premier site consultants at their offices in cities throughout the United States. We also arrange their participation in VIP and hospitality events that bring our state, regional, and county partners together with site consultants and corporate influencers. In addition, we offer cooperative advertising opportunities in industry-specific publications.

Incentives to Stay in North Carolina

North Carolina is a state that is consistently supportive of business and responsive to its needs, while providing a high quality of life for employees. We are one of the fastest-growing states, attracting roughly 280 new residents a day. Year after year, North Carolina is among the top five states in several respected business rankings.

In addition to our very affordable costs of living and doing business, skilled IT workforce, and strategic central East Coast location, we offer a highly appealing tax and regulatory environment. For example, our state’s corporate income tax of 3 percent is the lowest rate among the 44 states that levy the tax.

And in 2018, North Carolina will fully implement single sales factor apportionment for how it calculates corporate tax liability for multistate corporations. Moving to single sales factor apportionment will further encourage expansion here because it doesn’t penalize companies for investing in new facilities or hiring (unlike a traditional three-factor apportionment that looks at payroll and property, in addition to sales).

Lending a Hand

The state of North Carolina offers performance-based grants to eligible, growing companies in any industry. In addition, North Carolina law specifically provides for reduced property and utility sales tax for qualifying data centers. These exemptions are offered on the purchases of equipment, software, and electricity.

Companies that build and occupy massive data centers in North Carolina have benefitted from sales tax exemptions for many years. But in 2015, state lawmakers made those tax breaks available to smaller data centers.

The changes extended the sales tax break to companies that provide or occupy multi-tenant data centers. The new law also reduced the minimum private investment commitment data center providers and tenants must make to qualify for the tax break from $150 million to $75 million. The changes, which recognize a trend toward multi-tenant data centers, better position us to compete with states offering tax breaks to data-center tenants.

In addition, our power companies are very willing to partner with data centers to accommodate their energy needs and preferences. This includes offering options to use electricity generated from renewable sources. North Carolina is a leader in the Southeast in the production of renewable power from utility-scale sources.

Prospecting for the Future

EDPNC reaches out to companies seeking to build or relocate data centers by making sure we are well represented at major industry events that focus on the IT industry, and we build relationships with site consultants who have data centers among their clientele. Some of the industry events we have attended include CeBIT in Hannover, Germany, the largest information technology trade show for industry professionals, and Data Center World, a global conference for data center and IT infrastructure professionals.