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OM in the News: Iowa–Home of Corn and Facebook

November 16, 2014
Facebook's servers require only 75 employees in this massive facility

Facebook’s servers require only 75 employees in this massive facility

Among the big draws in Altoona, Iowa, population 15,000, are Adventureland, a Bass Pro Shop, and the Prairie Meadows casino. “And now,” says The Wall Street Journal (Nov. 15-16, 2014), “it has Facebook’s new data center.” The social network just opened the $300 million facility, a move that highlights the intense competition and lavish tax breaks available from small communities looking for technology bragging rights. Nearly 3 times the size of the city’s sole Wal-Mart, Facebook’s warehouselike structure is packed with refrigerator-sized stacks of computer servers and thick coils of cables. The Altoona facility was built on millions of dollars of tax breaks and about 18 months of negotiation.

Facebook isn’t Iowa’s first high-tech catch. Microsoft  is spending $2 billion on a data center nearby in Des Moines. Google is expanding a facility in Council Bluffs.

States and cities long have vied against each other to lure factories, sports teams and corporate headquarters. Iowa, the county’s largest producer of corn and soybeans, is among more U.S. states rolling out a green carpet for those farming bits and bytes. Officials say data centers broaden their tax base, create well-paying technical and construction jobs and confer bragging rights that will lure companies with bigger hiring plans. They also contribute to the local economy without stressing infrastructure such as roads and sewage plants.

But it remains an open question whether the cost of these facilities in tax breaks and services works out in their favor. Altoona provided Facebook a 20-year exemption on paying property taxes, and Iowa agreed to $18 million in sales-tax refunds or investment-tax credits through 2023. Facebook pledged to spend at least $300 million on the project and create jobs paying $23.12 an hour. “For the tax breaks they often receive, the centers produce few jobs or spinoff benefits,” said an Iowa State U. prof. Tech companies aren’t looking for incentives alone. Availability and pricing of electricity, which can exceed 2/3 of the cost to run a data center, are among the most important factors.

Classroom discussion questions:

1. Are these unusual incentives?

2. What are the risks to each side–Altoona and Facebook?

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