Active Infrastructure’s Chief Infrastructure Officer, Michael Grella, discusses the importance of communication and engagement as part of a successful project.
While power constraints, continued supply chain challenges & long lead time for equipment[1], along with a shortage of infrastructure-ready sites[2], are the primary issues that could potentially cause a slowdown of data center development in 2023, another issue lingers that rarely generates media attention outside of local newspapers and blog posts. “Not in my backyard” (NIMBY) issues are also creating headwinds for new data center development, particularly in established data center markets around the country. In the late 2000s and early 2010s, before data centers were sought after by many communities for the healthy tax increments generated with relatively low impact on traffic and government budgets, data centers were shunned by many communities because elected officials were focused on attracting investment that would burnish their reputation as job creators, particularly during times of high unemployment. Additionally, few states had sales tax exemptions or other incentives to attract data center investment. Virginia was an exception, passing the state’s first data center tax exemption legislation in 2008 and expanding it further in 2010. As an early adopter of incentives, Virginia ultimately became the data center capital of the world with an estimated 35% of all known hyperscale data centers worldwide[3]. Fast forward to 2016, when a majority of states offered data center tax incentives, the arms race continued[4]. States took notice of large-scale capital investments made by data centers, as did localities who would offer lucrative local property tax abatements that provided future opportunities to fund public infrastructure and schools once the data center property was fully assessed on the tax rolls. Combining these economic incentives with virtually unlimited available land sites and abundant electrical and water utility capacity created a gold rush among developers, hyperscalers, and colocation providers to pursue projects.
Fast forward to 2023. Even while more states offer data center projects tax exemptions and other economic incentives, and localities are more sophisticated about the need to incentivize data center development, elected officials are listening attentively to their constituents who are not viewing the prospect of new tax revenues alone as justification for welcoming data center projects. Across the country, in developed and emerging data center markets, officials are scrutinizing the value of data centers and assessing whether they are the highest and best use of remaining developable land. Data center developers are increasingly facing questions about energy and water consumption, noise, vibrations, the facility’s carbon footprint and demands for more job creation. Furthermore, it appears that jurisdictions are gravitating back to where we started: seeking to attract electric vehicle, chip fabrication, and advanced manufacturing facilities that promise to create hundreds or thousands of jobs. Until recently, developers acquiring land parcels that were not zoned as-of-right for data center development would undertake the rezoning process with a higher confidence level of obtaining a favorable outcome, assuming they could address project externalities.
To address these legitimate questions and concerns, data center projects require that developers come to the table with more than plans, studies, and capital. While the hyperscalers can deploy their community affairs, public policy, and corporate communications resources to address NIMBY concerns, disclosing their identity prior to acquiring a site introduces risks, including public backlash against the company and sellers demanding higher land prices. But the desire to maintain anonymity until the last minute can put applicants in a bind as they weigh the potential impacts of providing greater transparency and information to the public and restrict the ability of public officials—even those supportive of data center development—to address constituent concerns.
Hyperlocal, not Hyperscale, as a Focus
There is no quick-fix solution to these challenges. In fact, the solution may be the opposite: a slower and collaborative partnership with local stakeholders. This “slow fix” method requires patience and commitment to grassroots engagement with community leaders, local non-profits, elected officials, school district officials and PTAs, environmental and conservation groups, and other local stakeholders. This presents a conundrum for developers who are charged with solving for short-term customer demand in multiple markets simultaneously and do not have the resources nor the time to spare while constructing powered shells and building out server rooms. Most development projects operate on a tight and unforgiving timeline that cannot afford to incorporate extensive community engagement into the delivery schedule. As we believe that it is imperative to incorporate community engagement into a project’s critical path, one of the first steps our team pursues after identifying a potential site is becoming a regular presence in market and meeting with local officials and community leaders to identify and proactively address potential issues.
While no standard playbook exists to address issues and challenges encountered during the permitting and development of data centers, it is beyond dispute that ignoring such concerns and attempting to circumvent scrutiny never ends well. Even if a project can secure necessary approvals to proceed without public engagement, the negative blowback from a lack of engagement where hundreds of millions or billions of dollars will be invested over many years is a fool’s errand. Conversely, a well-thought engagement strategy to develop rapport and earn the trust of officials, policymakers, neighbors, and interested stakeholders that are potential project supporters, third-party validators or, at a minimum, earning respect from opposition who appreciate you took the time to listen, will pay dividends for years to come. At a granular level, taking the time to understand specific concerns from the various parties will inform the type, depth, and frequency of your engagement strategy and what tools in your toolbox are needed to maximize your chance of success, e.g., economic impact studies; a report quantifying the incremental tax revenue to the community that will fund public services, including schools, roads, and first-responders; describing how the project/developer will support smart city initiatives, smart manufacturing, and catalyzing a technology ecosystem; articulating significant investments in water, wastewater, electrical, and broadband infrastructure; and the creation of very well-paying, resilient technology jobs.
The idea that an out-of-town deep pocketed technology company or developer will drastically change the character and use of neighboring land can rightfully cause trepidation or even resentment. What can we do as developers to reassure neighbors that we will be good stewards of the land and good neighbors? Engage, listen, and educate. Engage with the community by creating an open dialogue with all stakeholders early in the development process. Listen to their ideas for maintaining the character of the parcel and offering ideas for any areas that cannot be developed, focusing on the aesthetics and what will be visible in plain view. If a town council or planning board meeting is the first-time officials and residents have an opportunity to voice their concerns, it is likely that you have already lost the battle of public opinion. Educate them on how the project will contribute to the economic well-being and resiliency of local farms, businesses, and workers without causing harm to their neighborhood: without smokestacks or chemical/toxic effluent, without degradation of local roads, and without crowding their schools all while making meaningful contributions to the local tax base. Presenting a joint front between local sellers and developers/operators where residents can act as de facto spokespeople and validators of a project can help ameliorate the unease among their neighbors regarding proposed changes to their community’s landscape.
Early community engagement, frequent and transparent communication, and empowering local stakeholders with information is just as critical to a successful data center project as utility availability. To sum it up, emotional intelligence rather than artificial intelligence will always be the key to unlocking a successful data center project.
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