Quincy Cashes in on the Cloud
Inside a white metal fence laced with barbed wire on the outskirts of Quincy, in central Washington state, a construction crew maneuvers excavators that scoop up giant piles of earth. Just beyond the site, green shoots of wheat are beginning to sprout as rain drizzles overhead on a recent late-April morning.
Holder Construction is three weeks into the creation of a 350,000-square-foot building that will house thousands of servers capable of storing data and delivering software and other computing tasks. Dell (DELL), the computer maker behind the project, is spending $1 billion in two years to erect data centers around the world. It joins such companies as Microsoft (MSFT), Yahoo! (YHOO), Intuit (INTU), and Sabey that have purchased land in Quincy to build data centers to capitalize on the boom in demand for computing provided via the Internet, over the so-called cloud.
The biggest names in technology are building a digital, 21st century equivalent of the railroad. And just as some cities benefited disproportionately from the location of rail lines and stations a century and a half ago, small towns in rural America are angling to cash in on the boom this time around.
Bucking a Downtrend
Municipalities like Quincy are becoming increasingly sophisticated about how to use tax breaks and other incentives to attract construction. The stakes for small towns are higher still after the recession led to a surge in joblessness and left many cities and states in the red. According to a late 2010 report from the National League of Cities, 87 percent of city finance officers nationwide say their cities were worse off in 2010 than in 2009. Financial pressures are forcing 79 percent of cities to lay off workers and 69 percent to delay or cancel capital infrastructure projects, the report says.
Quincy officials say the data center building boom is helping them buck the trend. Real estate prices are rising, and tax revenue surged to $2.24 million last year, from $700,000 in 2005, according to City Administrator Tim Snead. Quincy recently spent $1 million on a new library and $75,000 for a new museum parking lot. It repaved 60 percent of the streets, bought a hook-and-ladder truck for the fire department, and erected an edifice for such services as the management of parks and water.
The city, which boasts a population of 6,750, has cut property taxes for residents because there's a larger base of tax payers in town, says Curt Morris, a commissioner at the Port of Quincy. "It's been good for our little town," he says. Morris says that Dell bought 80 acres for $3.6 million. "It's drastically increased the assessed property value and has given money to the city, which has used it smartly to upgrade sewers, plants, and wire lines," says Morris, whose family has lived in Quincy since the early 1900s.
Grant County, where Quincy is located, is benefiting too. The value of the county's land rose to $9.1 billion in 2011, from $4.6 billion in 2006. "Normally the county grows by about $500 million each year," says Laure Grammer, Grant County assessor. "Because of all the new development, our county has been growing by over $1 billion each year."
The swelling coffers have yet to translate into lower joblessness for the city of Quincy. Its unemployment rate rose to 12.9 percent in January, from 8.8 percent in 2008, a byproduct of the recession and the loss of jobs during winter months, according to the Bureau of Labor Statistics.
Quincy also faces increasing competition for data center building projects from cities around the country. Virginia, Wyoming, New York, Missouri, and Iowa are among the states whose rural areas have attracted technology giants. Google (GOOG), Apple (AAPL) and Facebook have all broken ground in small towns in North Carolina.
Washington's biggest rivalry may lie in neighboring Oregon. Quincy lost out to Prineville, 287 miles to the south, to become the site of a data center for Facebook. As the world's largest social network, Facebook needs more servers to store a growing number of photos, videos, and other information posted to user profile pages.
Prineville had more alluring tax incentives, says Morris. Facebook declined to comment about its decision.
To keep cities like Quincy from losing out in the future, the state approved a 15-month, 7.9 percent sales-tax break on any computing and power equipment that will be used there. Unlike many cities, Quincy doesn't offer property tax breaks.
Exchanging Tax Breaks for Jobs
Quincy also takes steps to ensure that data center building translates to more jobs. To receive a tax break, Dell, Sabey, Yahoo, and Microsoft had to agree to employ at least 35 people each from within the community at a living family wage, estimated by the Washington Research Council to be about $58,140.
Companies are also attracted to Quincy by bargain real estate prices, plentiful fiber-optic network connections, and low-cost electricity produced by hydropower. For instance, electricity in Quincy costs 2.85¢ per kilowatt hour. By contrast, in Melville, a small town on Long Island, New York, that's also the site of data centers, electricity costs 25.59¢ per kilowatt hour, according to a report last year by the Boyd Company, a consulting firm.
Quincy has negotiated its hydroelectric power supply, which comes from the Columbia River, for the next 44 years. In 2008, renewable energy—much of it fueled by hydroelectricity—accounted for 77 percent of the energy in Washington state, according to an April Greenpeace report. North Carolina, by comparison, relied on coal for 61 percent of its energy in 2007, and in 2008 only 3.6 percent of its energy was renewable. Aside from Washington, the biggest green data center locale is Oregon, with 65 percent renewable energy from hydroelectric power, according to the report.
Investing in Infrastructure
Quincy began as little more than a signpost on the Great Northern Railway in 1892 and was officially incorporated in March 1907. Morris's grandfather endured the statewide drought of 1920 and 1921 and stayed on, even as many other residents left. Water finally flowed to Quincy in 1951, bringing irrigated farming to the area.
Half a century later, in 2004, Quincy decided it wanted to bring development to the area, so it invested in infrastructure and made sure that areas were zoned properly. "We bought farmland and we put in roads, water, and power," says Morris. Soon after, Microsoft bought 75 acres at an average of $13,000 an acre, he says. The city can issue a building permit in a six-week period, whereas some cities can take more than a year, he adds.
Another milestone came in 2006, when Microsoft and Yahoo announced plans to build data centers in the area. Microsoft later expanded its operation. "A big piece was the renewable energy sourcing, primarily all hydro, and the cost of energy," says Christian Belady, general manager of data-center advanced development at Microsoft, who says the company uses about 43 different criteria when locating data centers. "We had the land and the infrastructure. It was a natural place for us to put the expansion." Microsoft, the world's largest software maker, is based in Redmond, Wash., 160 miles away. Dell and Yahoo declined to comment on operations in Quincy.
And while joblessness remains high for now, Quincy officials and some residents say they're confident that higher receipts will mean more jobs in the future. For every job created in a data center, another is created indirectly in the community, according to a January 2010 report by the Washington Research Council.
Construction workers in the area bring business to local restaurants, such as Zack's Pizza and the Grainery, a sandwich store. Debbie Henne, owner of Rob's Video, around the corner from City Hall, says she has noticed more construction workers coming in at night to rent videos. She has lived in Quincy her whole life and remembers a time when downtown businesses were thriving. She says she hopes to see that again.