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Billion-dollar boom

Posted October 08, 2014 in West Des Moines
West Des Moines Mayor Steve Gaer calls Microsoft’s new $1.13 billion data center, also known as Project Alluvion, a “game-changer.” Photo by Michael Swanger.

West Des Moines Mayor Steve Gaer calls Microsoft’s new $1.13 billion data center, also known as Project Alluvion, a “game-changer.” Photo by Michael Swanger.

What Jordan Creek Town Center and corporate campuses like Wells Fargo have done for the city’s tax base and profile, Microsoft’s new $1.13 billion data center, also known as Project Alluvion, will do for West Des Moines, city officials say.

“It’s a game-changer,” says West Des Moines Mayor Steve Gaer. “Look at the size of the project and the property taxes it will generate. It’s huge.”

Project Alluvion, which was officially unveiled in April, will occupy 154 acres of land on the southern part of Willow Creek Golf Course and an adjacent field to the west, both of which are located south of a power station that will run the data center. Construction of the four-phase project has yet to begin, but plans call for it to be completed in five to seven years, at which time it will boast about 1.16 million square feet on land located west of Iowa Highway 28 between Pine Avenue and Iowa Highway 5.

Microsoft has agreed to create at least $255 million in taxable value in West Des Moines, which translates to about $8 million per year in property taxes once the data center is completed. City officials say $8 million is equivalent to about 14 percent of the city’s annual operating budget and the tax money will be used to spur further development, including a Grand Technology Gateway, as well as to bolster existing programs like parks and recreation.

The multinational corporation based in Redmond, Washington, that develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers, says Project Alluvion will create 84 jobs. Sixty-six of those jobs must have a wage of at least $24.32 an hour.

When combined with its current $900 million data center off Grand Avenue that spans 42 acres and employs 89 people, Microsoft will have invested $2 billion in West Des Moines, making it one of the biggest data center projects in the United States and the largest investment in state history.

To help illustrate the size and scope of Microsoft’s investment, it tops the $1.9 billion that MidAmerican spent for wind turbines in five locations. It also surpasses Facebook’s $1 billion Project Catapult data center in Altoona that will occupy 192 acres and create 31 jobs, as well as Google’s $1.5 billion data center in Council Bluffs that boasts a land area of 1,000 acres and 130 jobs.

“We’re very excited about what this will do for our community,” says Clyde Evans, director of the city’s Community and Economic Development Department. “We have a very good relationship with Microsoft, and they were confident in our ability to get this done.”

Evans says several factors helped West Des Moines land Project Alluvion, from the city’s track record for economic development, to providing necessary infrastructure, to tax incentives, to previously having worked with Microsoft on its first data center here.

“We had a pretty good idea of what was necessary to do it, and we knew it was feasible for us,” he says.

In return for creating a data center with a taxable value of $255 million, Microsoft could receive a total of about $87 million in estimated incentives and infrastructure costs from the city and state. The Iowa Economic Development Authority approved a $20.3 million sales tax rebate for the company earlier this year, in addition to the $18 million in incentives through property tax rebates already promised by West Des Moines.

Other potential funding could stem from further reimbursements and cash incentives for site development, though no property tax rebates will be offered. Officials say potential infrastructure improvements are many, including street, water line and sanitary sewer updates, as well as fiber optic conduit and fiber line installation.

“What we won’t offer — and we’ve lost some companies as a result — is tax abatement,” says Gaer. “As a result, we haven’t received a single complaint from residents and groups like the Taxpayers Association of Central Iowa, who have approved of our methods. It’s been a great business model for the city and the citizens of West Des Moines.”

City officials say all public improvements and Microsoft incentives and reimbursements will be paid for through a Tax Increment Financing District (TIF) established for the area and covered by the Minimum Assessment Agreement that will be part of the development agreement with Microsoft. The city created an urban renewal area for the project’s site in the southeastern portion of the city, which will replace the southern nine holes of Willow Creek Golf Course that were added in 1990 and are part of the club’s regulation 18-hole course. Microsoft agreed to pay an undisclosed sum of money to the family that owns the golf course that opened in 1961.

The TIF district will allow the city to collect most of the tax revenue for up to 20 years as a way to quickly recoup the cost of infrastructure improvements for Project Alluvion. The city’s agreement with Microsoft will also allow it to use some of the money it collects for other projects, including new development in West Des Moines’ southeast corner, which city officials have identified for light industrial and commercial use.

“The goal of economic development is to promote growth, so the more money that is available to us, the more we can do,” says Evans. “These types of projects fund things like infrastructure in that area, which opens up other projects for development. It’s like what we did with Jordan Creek. We hope this project will have the same type of effect.”

By connecting Microsoft’s two big data centers on either side of the city with fiber optic cables, city officials hope to grow the Grand Technology Corridor that runs west of Interstate 35 at Microsoft’s current site to Des Moines Area Community College West on Grand Avenue. It could also stretch for miles along the eastern edge of I-35, making it one of the most fiber-rich areas in the state.

“People traditionally look at water and sewer infrastructure when looking for a site to build, but users are also looking for broadband access,” says Evans. “Creating a fiber-rich corridor will be crucial to businesses and broadband access will be a major driver of development. The Microsoft project is a great beginning to construction of that corridor.”

The mayor agrees with Evans, adding that city officials hope to attract vendors who might supply Microsoft with hardware, software or tech support.

“We think there is a huge opportunity for additional data centers, too,” he says.

Gaer says tax money collected from the Microsoft data center could also be used to build a new public safety facility in the area.

Microsoft’s data center site will replace the southern nine holes of Willow Creek Golf Course that were added in 1990 and are part of the club’s regulation 18-hole course. Microsoft agreed to pay an undisclosed sum of money to the family that owns the golf course that opened in 1961. Photo by Michael Swanger.

Microsoft’s data center site will replace the southern nine holes of Willow Creek Golf Course that were added in 1990 and are part of the club’s regulation 18-hole course. Microsoft agreed to pay an undisclosed sum of money to the family that owns the golf course that opened in 1961. Photo by Michael Swanger.

“We have big needs for EMS and fire as we expand development into Warren County. We’ve got a lot of geographical area to cover for public safety,” he says.

The mayor cited parks and recreation as another potential benefactor, citing the ongoing need to provide the “appropriate parks and recreational services for our community.” He also said a portion of the money could be used for reducing property tax rates in West Des Moines.

“We have a $3 million budget shortfall annually. Fortunately, we compensate for that with new growth,” says Gaer. “We don’t use red light cameras or other things to pay for that.”

Gaer adds that once the infrastructure costs are recouped for Project Alluvion, another entity that would benefit from the property tax dollars it generates is the local school district.

“The schools will get their share, too,” he says.

It might take about 15 years before the schools reap the benefits, officials say, but eventually the schools, regional services, Polk County and the city will split the tax revenue generated by Project Alluvion before the 20-year time limit in the TIF district expires.

Evans says investing in technology not only helps attract businesses, but it sways highly skilled workers.

“People say that Project Alluvion will only create 84 jobs, but they’re very technical jobs,” Evans says. “Those people who move here to work also have the same wants and desires that others have, including enrolling their kids in schools that are up on technology. We’re in the information age, the technology age, and that’s very important to development and the workforce. Companies go where the labor force is because there’s a lot of competition for a trained workforce.

“It’s important not to underestimate what Microsoft brings when it offers technical, well-paid positions. Keep in mind that 78 percent of job growth comes from small businesses, which usually employ less than 150 employees. Though most people don’t consider Microsoft to be a small business, their workforce can positively affect our community.”





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