Could Virginia’s data center fight scare off other industries?

In 2024, following the unsuccessful effort to bring a sports arena to Alexandria, I wrote in Virginia Business that the Commonwealth would continue to find success recruiting investment and jobs because “the fundamentals of the commonwealth’s business case remain unbelievably strong and make us the envy of most other states.”

That opinion was ultimately proven correct when Virginia achieved a record sixth No. 1 ranking in CNBC’s Top States for Business and saw many more significant economic development victories.

Now, two years later, the Commonwealth is on the verge of making a mistake that will severely damage our credibility as a reliable partner and undermine our fundamentals in a way that will cause short- and long-term economic harm if the Virginia Senate succeeds in immediately terminating the state’s most successful economic development recruitment and retention program.

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When it comes to economic development and business recruitment in Virginia, I have sat on both sides of the table over the last three decades.

As a cabinet secretary and state agency head for three governors — two Democrats and a Republican — I represented the Commonwealth in high-stakes, competitive recruitments and negotiations.

In the private sector, I have helped companies negotiate new investments, expansions, relocations, and agreements with the Commonwealth.

No matter which seat I occupied, there was never any question about whether Virginia’s promises and agreements were reliable.

Never — until now.

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More than 15 years ago, Virginia created the Data Center Retail Sales & Use Tax Exemption program, modeled on the long-standing sales tax exemption for manufacturers and industrial businesses that do not pay sales tax on their essential equipment and raw materials.

It has been a tremendous success and has now been implemented by more than 35 other states.

According to the Virginia Department of Taxation, the data center industry has invested more than $80 billion in Virginia and generated more than $5 billion in tax revenue in just the past two years alone.

It calculated an 11% return on investment, meaning the tax program is a net revenue generator that more than pays for itself.

A recent analysis by accounting firm PricewaterhouseCoopers found the data center industry supports nearly 170,000 Virginia jobs and more than $17 billion in salary and wages to Virginia workers.

In multiple studies, Virginia’s Joint Legislative Audit and Review Commission (JLARC) found that 90% to 100% of all data center investment here would not have occurred without the state’s sales tax exemption program, and that data center investment accounts for around 84% of recent business investment announced by the Virginia Economic Development Partnership from 2022-2024.

A Virginia Senate plan insists that this economically successful revenue and job creating program must be terminated eight years early, even after businesses signed agreements and met their obligations to create tens of thousands of jobs and invest hundreds of billions of dollars under the assurance that the program would exist until at least 2035.

Adding insult to injury, the elimination of the tax program is being proposed just as many rural counties are beginning to recruit and win data center investments like those that have benefited communities in Northern Virginia.

The state’s lawyers are already concerned about the likelihood of lengthy, expensive litigation if Virginia breaks its commitments and signed agreements in such a bait-and-switch manner.

But no matter how lawsuits may turn out, the inevitable damage to Virginia’s reputation will make it much more difficult to recruit jobs and investment to the Commonwealth when we badly need both.

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It is perfectly appropriate for Virginia to engage in a thoughtful examination of whether any particular economic development program needs changes or adjustments.

But that is not what is happening here.

Instead of a thoughtful review and analysis led by JLARC and driven by facts and stakeholder engagement — which is what normally takes place with state incentive programs — a figurative bomb was dropped on Virginia’s economy and business reputation with no warning, no details and no discussions with the affected industry, the House of Delegates or the governor.

While we already know the Senate plan will result in short-term economic pain through canceled projects and reduced investment — a $25 billion project has already been abandoned and a $100 billion project in Southern Virginia depends on the tax program — the long-term implications of its proposal are far bigger than the tax treatment of one industry.

Virginia’s reputation as a top state for business was built in large part on our reputation for reliability, predictability and thoughtful governance by elected officials across the political spectrum.

The Senate proposal threatens to decimate the credibility and trustworthiness of Virginia as a partner for businesses that want to start, grow, relocate, invest, and create jobs in the state.

If Virginia breaks a promise to an industry that has invested hundreds of billions of dollars and created tens of thousands of jobs, businesses of all sizes in any industry will think twice before doing business in or with Virginia.

Beyond the incentive dollars, workforce programs, and anything else Virginia can offer when recruiting jobs and investment, what a business really wants is certainty, predictability and confidence that Virginia is going to hold up its end of the bargain.

If Virginia undercuts itself in such a dramatic way, every private sector decision-maker will have reason to wonder if Virginia is worth the risk, or whether their investment is safer in another state.

Even if the Senate plan does not prevail, its willingness to tear up signed, executed agreements has already done significant damage to the state’s reputation by giving businesses — including those beyond data center development or operations — a reason to doubt Virginia and competitor states another tool to recruit against us.

I have spoken with public and private sector economic development professionals from around the country who are already using the Senate plan against Virginia in head-to-head recruiting battles.

Before any more damage is done, it is time for the Senate to come to the negotiating table with the House and governor to craft a budget that protects our reputation, honors our commitments and allows Virginia to remain a national leader in job creation and economic growth.

Todd P. Haymore served as secretary of commerce and trade for Gov. Terry McAuliffe; secretary of agriculture and forestry for Govs. McAuliffe and Bob McDonnell; and commissioner of the Department of Agriculture and Consumer Services for Gov. Tim Kaine. He is chairman of the GO Virginia Region 4 Council, a member of the executive committees of the Virginia Chamber of Commerce and RVA757 Connects and serves on the Washington Airports Task Force and Greater Richmond Partnership Regional Leadership Circle. Contact him at [email protected].