Subsidized data centers can be expensive propositions for taxpayers.
They typically require hundreds of thousands of dollars in taxpayer assistance for every job created — and the price tag is sometimes much steeper. The cost of subsidizing data centers built over the past decade in Lockport, for example, worked out to $1.9 million per job. That’s far higher than the typical cost per job for a government-subsidized project.
What’s more, there are few indications that data centers inspire other new businesses to enter a locale, said Greg LeRoy, executive director of Good Jobs First, a subsidy watchdog organization that has studied data center development.
“I can’t point to any specific ripple effects created,” LeRoy said. “It’s not like you’re creating a tech ecosystem. You have a big warehouse full of computers sucking up a lot of electricity.”
Nevertheless, Gov. Andrew Cuomo’s administration is negotiating to award incentives to the would-be developers of data centers proposed for coal-fired power plant properties in the Town of Somerset, in northeast Niagara County, and the Town of Lansing, located about an hour southwest of Syracuse.
The data centers would house rows of computer servers powering cloud storage or artificial intelligence computations. The facilities would cost an estimated $650 million to build and have substantially greater computing power than what’s been built in Lockport. Between them, the data centers would employ 160 people; the jobs they provide would pay $40,000 to $60,000 annually.
State and company officials aren’t disclosing the terms of the subsidies under discussion. However, the New York Power Authority has allocated 12 of the 125 megawatts of low-cost hydropower the developers have requested for the facilities.
With assets of $545 billion, Blackstone has noteworthy ties to Cuomo. William Mulrow, a Blackstone senior advisory director involved in government relations work, served as a top aide to Cuomo from 2015 to 2017 and chairman of his campaign committee in 2018. Mulrow has since returned to Blackstone.
“The issue boils down to, is there undue political influence in the process by Mulrow and Blackstone, and are they getting essentially more in subsidy than they should be?” said John Kaehny, executive director of Reinvent Albany, which advocates for reform of state government. “We the public don’t know that because there’s no independent assessment.”
Unfulfilled promises elsewhere
Elected officials in Somerset and Lansing said the proposed data centers would help their towns offset the loss of jobs and tax revenue that the coal plants have provided over the years. Property taxes generated by the two plants have dropped over the past decade from a combined $21.5 million to $3.6 million. Both plants are operating at a fraction of their capacity, with closure on the horizon.
“The [Somerset] plant is the largest taxpayer in Niagara County in the school district and the town, and the plant, for all intents and purposes, is going to be forced to close as a result of New York State energy policy,” said State Sen. Robert Ortt, who represents Somerset. “I think this project should warrant a lot of attention from Empire State Development and hopefully they would be able to support it.”
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To establish its credentials, Beowulf has pointed to a similar coal plant-to-data center project of theirs in Hardin, Montana, and left some public officials in New York under the impression that the facility is completed. But data center construction in Montana has yet to start in earnest and is more than six months behind schedule.
“If they’re giving the impression that everything’s up and going and running great they’re wrong,” Hardin Mayor Joseph Purcell told Investigative Post. “They’re misleading New York State and the public.”
What’s more, Rocky Mountain Power, which until recently owned that plant through Blackstone subsidiary Heorot Power, owes $2.5 million in back taxes to Hardin. That, says the mayor, led to the city’s default on bonds issued to pay for the firm’s coal plant infrastructure upgrades.
Not everyone thinks subsidies for data centers is a good use of public assistance.
“The state does have a responsibility to help out these towns, but giving money to Blackstone isn’t necessarily the best way to help out this community,” said Seth Feaster, energy data analyst at the Institute for Energy Economics and Financial Analysis.
“There are a lot of financially questionable schemes floating around, many of which are highly dependent on getting federal, state or local subsidies.”
This story is based on municipal documents and meeting video as well as interviews with more than 15 sources, including analysts, public officials and government agency representatives in New York and Montana. Officials from Beowulf Energy, Blackstone and Verizon all refused interview requests, as did the governor’s office and Empire State Development Corp.
ESD said in a statement: “The State is committed to aggressively pursuing investment and economic development opportunities that create jobs and strengthen the economy, and we stand ready and willing to engage with any company that shows an interest in doing business in New York State.”
Small towns, fragile economies
The Lansing plant began generating power in 1955. The facility in Somerset near Lake Ontario got its start in 1984. On a visit one August afternoon, the Somerset plant was silent, as it remains most days now. A trio of vultures rested alongside a neighboring cornfield. Overhead, power lines that one day could carry power from New York’s energy grid into a data center stretched across Route 18.
That facility was named one of New York’s dirtiest power plants in 2014 by the Environment New York Research and Policy Center.
New York State in May adopted regulations requiring all power plants to meet tougher limits on carbon dioxide emissions, effectively killing coal power production here.
Even before then, power production and employment at both plants had dwindled. The Lansing plant ran at less than 7 percent capacity between February 2018 and June 2019. The Somerset plant ran below 50 percent capacity between February 2015 and this April, producing no electricity at all in May or June.
Jobs at the Somerset plant have dropped from a peak of 200 to 56 today. Around 300 people worked at the Lansing plant in 1995; today, 44 workers remain.
Local legislators acknowledge that power plant skills won’t readily translate to data center work.
“I don’t pretend that the people that are working at the power plant now are going to automatically find new jobs at the data center. Some of the jobs will be transferable — you know, many won’t,” said Tompkins County Legislator Mike Sigler, who represents Lansing.
The people of Somerset and Lansing want these data centers. The Lansing town board unanimously passed a resolution in June “urging” Cuomo, NYPA and ESD to support the project.
“The town in general is supporting this conversion because there’s just no other option,” said Lansing Town Supervisor Ed LaVigne. “The proposed data center is better than nothing. By the end of the year, there’s a lot of people that won’t have jobs. That part is painfully hard to swallow.”
In early August, down the road from the Somerset plant at the Babcock House Museum, residents and legislators convened for a “Rally for Somerset” in support of the project there.
“The power plant owners have proposed a plan to transition with The Empire State Data Hub project that will be a Win Win!!” exclaimed a letter from Somerset Town Supervisor Daniel Engert to town residents.
“I’m not aware of anyone who is not in support of the data center project,” Somerset Town Clerk Tracy Carmer told Investigative Post.
The Sierra Club has also endorsed the project.
Efficiency of subsidies disputed
Studies have shown that public subsidies for data centers are an expensive way to create jobs.
The data center complex in Lockport has received $478 million in public assistance, a combination of property and sales tax abatements, discounted hydropower and cash grants. The facility, purchased by Verizon from Yahoo in 2016, employs 251. Half of those are call center jobs.
Marc Smith, Lockport’s coordinator of economic development, said Drone Energy and Up North Hosting were inspired by Yahoo to build data centers in town. But those operations have produced just five full-time jobs.
Data centers require engineers and technicians who diagnose problems and maintain equipment. But they typically do not need many of them.
A Good Jobs First study from 2016 of 11 data centers around the country found subsidies ranging from $780,833 to $6.4 million per job. Each project created between 41 and 210 jobs.
“We recommend that states cap the total value of state and local subsidies to data centers at $50,000 per permanent job,” stated the report.
When considering the Beowulf request for hydropower to help run a data center in Somerset, NYPA gave the plan a poor rating on the jobs-to-megawatt scale it uses to make energy allocation decisions. It estimated 17 jobs created per megawatt of energy allocated, below the average of 30 for other projects.
Connections to Cuomo
During his January 2016 State of the State address, Cuomo announced intentions to stop remaining coal-fired energy production in New York by 2020. At the time, the administration said the governor would work “with plant owners and host communities to achieve his objective in a manner that will preserve jobs or retrain current employees for new jobs in New York’s clean energy economy and provide tax revenue stabilization assistance to local governments and school districts.”
Environmental and economic forces put a damper on coal power production by 2016, and investment in that business was decidedly unpopular. That May, through a labyrinth of affiliates and subsidiaries, Blackstone — which often invests in distressed businesses, real estate and energy companies — bought the Lansing and Somerset coal plants anyway.
The day of Cuomo’s 2016 address, a Beowulf executive took a call directly from the governor’s staff, according to Jerry Goodenough, a longtime operations and development executive for the plants.
“I’ll never forget this,” said Goodenough during a presentation about the data center plans held this June in Lansing. “It was the day that the governor was having his State of the State address, 2016, and he wanted to warn Beowulf, during the address, he’s going to be announcing he’s going to be closing coal.”
Beowulf Energy operates the plants through Blackstone subsidiary Heorot Power, named for a feasting hall in the epic poem that inspired the Beowulf moniker. A Maryland firm, Beowulf develops and operates power generation facilities throughout North America.
In 2017, Beowulf donated $10,000 to Cuomo’s re-election campaign. The firm’s CEO, Paul Prager, gave $10,000 to Cuomo’s campaign in 2014, state Board of Elections records show.
Blackstone, headquartered on Park Avenue in New York City, employs 2,500 in 24 offices across the globe.
When Mulrow served as Cuomo’s secretary from 2015 to 2017, it was no coffee-fetching gig. Rather it was one of the top appointed jobs in state government, paying more than $180,000 a year. During his tenure, he was ranked in the top 20 among the 100 most-powerful people in state government circles by City & State magazine. Mulrow stepped down from Cuomo’s staff to head up his campaign committee in 2018.
His association with the Cuomos dates to the 1990s, when he advised the campaign of then Gov. Mario Cuomo.
Mulrow did not respond to an interview request. Instead, a Blackstone spokesperson said Mulrow “has had no involvement in the coal plants or proposed conversion to a data center.”
Ortt, the state senator, said the political ties should not sideline the project.
“I’m not going to sit here and say we’re not going to do it — for the first time, we’re going to stand up on this when it comes to Somerset,” said Ortt. “There’s been so many other projects you could point to those kinds of connections.”
Montana project behind schedule
Beowulf officials have trumpeted a coal-to-data center conversion project of theirs in Hardin, Montana, in pitching residents and officials in New York.
“They’ve already done this once and so I think it’s a good blueprint for this facility,” Ortt told Investigative Post in August.
Sigler, the Tompkins County legislator, pointed to the Montana project, too, telling Tompkins Weekly the company “has completed a similar project in Montana.”
But that initiative is nowhere near complete.
Purcell, the Hardin mayor, told Investigative Post last week the project remains stalled.
The developers are awaiting shipment of data processors, according to Matt Vincent, a spokesman for FX Solutions, the firm overseeing construction of the Hardin data center.
Heorot Power sold the Hardin facility in February to Big Horn Datapower Holdings. Beowulf said it continues to operate the power generation facility to provide power for the planned data center.
After learning about the status of the Montana project in October, Ortt remained unfazed and in support of the Somerset project.
“Projects get stalled and delayed and timelines on construction projects change all the time. This goes back to me supporting what I think is an absolute must for this community.”
Purcell labeled the sale of the Hardin plant a “tax shelter” scheme. He said his contacts for the data center project are the same people he’s always dealt with at the coal plant, namely Beowulf’s managing director, Michael Enright, who has represented the firm in New York, and Beowulf vice president Jordan Love.
“I’m still talking to the same people about the same things,” said Purcell. “[Big Horn Datapower] is just another hat or just another layer of their business.”
Today, not only is Hardin waiting for a data center, he said Heorot subsidiary Rocky Mountain Power owes the city $2.5 million in overdue taxes as of last month.
The tax delinquency comes after the city awarded ten years of tax abatements to Rocky Mountain in 2006. When Heorot (then known as Bicent Holdings) went bankrupt in 2012, the taxable value of the plant dropped.
“Because of all that, that’s what put us behind on our revenue bonds and made us in default,” said Purcell.