- Written by Jason Notte
- Published in Tech
- 0 comments
Hillsboro’s data center development boom raises questions about industrial land use and job creation.
rom just outside the tulip stand at VanderZanden Farms on Northwest Jackson School Road in Hillsboro, you can see the distinct lines of Portland’s metro area urban-growth boundary.
Along Northeast Evergreen Road, just to the south, a rodeo arena and fescue fields sit across from dense housing developments. Farm equipment shares the road with commuters driving to jobs at tech firms Genentech, Intel and elsewhere in Hillsboro’s Silicon Forest.
In 2014 a “Grand Bargain” by the Oregon State Legislature brought 545 acres to the east of Northwest Jackson School Road into Hillsboro’s urban-growth boundary. You would never know it today; VanderZanden Farms and its green fields look much as they did six years ago.
The small-acreage neighborhoods to the north and east look largely untouched. But as recently as 2018, Hillsboro economic development director Dan Dias claimed there were “zero acres of urban reserves currently feasible for future economic development.”
Given the large amount of open space that still exists, you may ask how that can be. Well, part of the answer lies in large, concrete boxes along Brookwood Parkway roughly 3.5 miles west of VanderZanden Farms. On a site where state and local governments once spent more than $100 million to prop up German solar-panel manufacturer SolarWorld and the roughly 1,000 jobs it created, Japanese firm NTT is placing a 47-acre data center that will employ a small fraction of SolarWorld’s total.
Just to the north of that site, Kansas data-hosting company QTS is completing a 92-acre data center on what was previously farmland. According to state records, Hillsboro data centers employed just 86 people in 2019 while enjoying $3.1 million in tax breaks. That amounts to more than $36,000 in tax breaks for each job produced.
Data centers take up considerable amounts of acreage, use lots of energy and water, and draw millions of dollars in financial incentives while producing minimal jobs of their own. While data centers pay handsomely for land, they also redefine arguments for “industrial” land usage.
As the city makes its case for more industrial land, it is also changing both its codes and its incentives to slow data center building and investment.
“Data centers play an important role in the modern economy, but that impact is often hard to measure in direct employment,” says Ted Reid, Metro’s principal regional planner. “Rather, data centers provide digital infrastructure that the economy relies on.”
That infrastructure comes at a cost. Advocacy organization Good Jobs First notes that Oregon’s enterprise zone property tax abatements for data centers cost the state $33.7 million in 2015 alone.
That is less than the $57.4 million that neighboring Washington state handed out to data centers in 2016, but Oregon’s (and Hillsboro’s) incentives still come with consequences.
That is particularly concerning to Curt VanderZanden, who owns a multiacre property in the “Grand Bargain” land just north of his family’s farm stand. As a result of the bargain, he and some of his neighbors have spent the past six years fighting to keep their homes from being redesignated as industrial land.
He fears his neighborhood will be purchased for lower-than-residential prices and its small-acreage properties converted into data centers.
“It just feels like we’re being deceived, that something’s not ringing true,” VanderZanden says. “We’re being told that we need these companies for employment, but then there are data centers that employ nobody.”
Because the enterprise zone’s tax exemptions apply to new buildings and equipment, a data center that produces one job often receives the same proportion of incentives as a company employing hundreds or thousands.
For example, Jireh Semiconductor employed 430 workers in Hillsboro in 2017 and received nearly $283,000 in incentives on its $16.7 million assessment. Infomart, a data center that provided just seven jobs in Hillsboro that same year, received nearly $875,000 in incentives from its $51.7 million assessment.
“Instead of deciding to be the solar, biopharma and tech centers of the world, they are allowing and approving data centers — many of them,” says Cherry Amabisca, a former Intel employee who now serves as president of Save Helvetia, a land-use advocacy group headquartered just north of Hillsboro.
“We know they employ very few people, use a lot of water and electricity to keep cool, and take up a lot of farmland. They don’t do what Hillsboro said they wanted: provide job, jobs, jobs and high-paying jobs,” she says.
Using Hillsboro’s metrics, the Reser’s Fine Foods plant that employed 400 people in the city in 2016 received $1.02 million in tax abatements while a LinkedIn data center with eight employees took in $1.2 million in incentives the next year.
The ViaWest data center produces a relatively robust 31 jobs, but the nearly $458,000 in incentives it received in 2016 overshadowed the $6,952 offered to Salesforce for employing 330 workers that same year.
Dirk Knudsen, a Hillsboro real estate agent based in Orenco who served on the city’s Historic Landmarks Advisory Committee, presented a map of the Genentech site just off of Brookwood Parkway. The site is ringed with check marks, with one signifying Japanese semiconductor materials firm JSR Micro’s $100 million, 25-acre plant employing 30 people.
The remaining marks are all data centers, including those slated for land surrounding the Shute-MeierJurgen Farmstead (which dates to 1890) and potentially a nearby tribal and pioneer cemetery. Knudesn, who is also president of the Hillsboro Historical Society, notes that some data centers in that area are built on land purchased for between $320,000 and $500,000 per acre, but that such prices may overvalue the land given the centers’ contribution.
Dirk Knudsen in front of the new QTS data center in Hillsboro. Photo: Jason E. Kaplan
“For me, as a committee member and active real estate agent, maybe they are a blessing: Maybe we don’t want that traffic and massive employment base, and maybe we do want that cash,” Knudsen says. “But how are we making money off of them?”
That answer may be in volume. San Francisco-based data center builder and owner Digital Realty operates a 49,000-square-foot, 10,000-kilowatt data center on Hillsboro’s Northeast Aloclek Drive, right near a landing site for a transpacific cable connecting data from China to the U.S.
Hillsboro serves as a crossroads for multiple cables stretching from Japan, South Korea, New Zealand, Australia and various U.S. points, including Seattle, San Francisco and Santa Clara, California. As a result, Digital Realty’s Hillsboro facility gives clients access to 25 data carriers, eight cloud providers, more than 130 cloud access points, more than 60 other Digital Realty data centers and more than 450 third-party data centers.
“It’s a really exciting opportunity to have that capability there,” says Marc Musgrove, director of corporate communications for Digital Realty. “It’s a mission-critical industry: At times like these, when many more services are going online, these are the hubs that support the IT needs of many of the services we’ve come to rely on.”
When Digital Realty completed an $8 billion merger with data center company DuPont Fabros, it inherited a parcel of land in Hillsboro. It is building the first phase of what will be a 1.2-million-square-foot, 96-megawatt data center.
To put that energy usage into perspective, that is enough to power 76,450 homes, according to the Northwest Power and Conservation Council.
While Musgrove notes that demand for new data centers is peaking, Hillsboro’s access to emerging Asian markets and inexpensive solar and wind energy through Portland General Electric’s green tariff agreement with large businesses makes it appealing to data center builders.
Through the green tariff agreement, Digital Realty and other data center companies that use a large amount of energy help Portland General Electric finance renewable-energy facilities in exchange for inexpensive renewable energy later. That comes in handy when one facility, such as Digital Realty’s new data center, uses more than double its host city’s annual residential power demand.
“We have this large footprint now in Hillsboro that will allow large enterprise customers to deploy with the scope and the scale that they need,” Musgrove says.
“There’s also a wider ecosystem within Hillsboro: The tech community has been there for some time, and you have access to talent, which is critical to what we’re trying to drive within the facility," he says.
The coronavirus pandemic has also increased demand for data center services. Data demand has surged as telecommuters use video-conferencing tools, educate children using online resources and watch more entertainment at home.
But how does the data center boom benefit Hillsboro? Musgrove notes that new facilities such as Digital Realty’s spur high-quality job growth, attract large information-technology companies to the area and help to revitalize communities.
“You also have to think about the teams that run these data centers,” Musgrove says. “You have full-time people who are Digital Realty employees, you have in-house contractors, you have security teams, various maintenance teams, and then the clients have their teams and their engineers with the really deep IT skills.”
But are there enough employees at data centers to warrant the tax incentives they receive? In 2017 Hillsboro officials revisited the enterprise zone incentives and made them a little less enticing for data centers.
The city now applies a community service fee each year based on the number of jobs created and retained relative to the taxes abated. For example, businesses that take in less than $20,000 in incentives per job created pay nothing for years one through three of the tax-abatement program, but pay back 25% of their abated taxes in years four and five.
However, businesses pulling in more than $20,000 in incentives for each job pay back 33% of those incentives for the first three years and 50% for the next two.
“We made that change because we have multiple economic-development goals: Some of it is job and wage creation, some of it is investment, some of it is industrial diversification,” says Hillsboro economic development director Dias.
“We made the change to try to balance it so that companies were getting an incentive that was somewhat proportionate to their ability to hit on a multiple of those goals,” he says.
Hillsboro Mayor Steve Callaway, meanwhile, notes that the city has also attempted to rein in data centers by demanding they be a part of a larger campus. For example, Intel runs a number of on-site data centers while Oregon Health and Science University also has data centers on its Hillsboro property.
“I see this as being responsive to our Save Helvetia neighbors, because we aren’t just putting data centers alone,” Callaway says. “We’re requiring neighboring businesses that support that.”
But companies including Adobe and LinkedIn already have stand-alone data centers in the city. Even if data centers tether to campuses, data center organization AFCOM notes that the average organization has 13 of them. That number will rise to 17 in the next two years as construction quickens.
As a result, data centers end up consuming a whole lot of electricity and water in the places they call home. With Oregon offering relatively inexpensive electricity, it is simple for a 100-megawatt data center like that being built by QTS to consume more than double the electricity of every home in Hillsboro.
In general, data centers require more than 2% of the nation’s electricity and more than 8% of the national total by 2030. They also require a considerable amount of water in the cooling process.
We’re looking too much broad-brush at the shiny new thing of the moment, hoping that we’re going to attract that,” says Mary Kyle McCurdy, deputy director of Oregon land use watchdog 1000 Friends of Oregon. “It’s too reactive and not really planning, and so you see land being used today in industrial sanctuaries for golf courses, go-karts and whatever else is down there in smaller parcels.”
QTS Data Center in Hillsboro. Photo: Jason E. Kaplan
In fact, just across Brookwood Parkway from the QTS data center and other proposed data centers, a 75-acre industrial parcel was carved up into far smaller lots. Among them is a data center but also a Topgolf driving range, the K1 Speed go-kart facility, an electrical supply company, a physical therapy facility and Amazon distribution facilities.
Hillsboro’s Dias notes that those facilities and new eateries and gas stations have become not only employers but an “amenity draw for local residents, companies and employees.” Where Dias sees a diversity of industrial usage, however, Metro’s Reid sees a redefinition of industry altogether.
“Changes in retail, including the growing role of e-commerce, have shifted industrial land development toward distribution centers,” he says.
“Again, there is a question about the economic benefits that accrue from that development since warehousing jobs typically don’t pay middle-income wages and e-commerce may be generating additional traffic. Yet, many of us have grown to expect the convenience of online shopping.”
Yet, as 1000 Friends’ McCurdy notes, not all of these facilities have to go into Washington County. During the “Grand Bargain,” communities in Clackamas County vociferously wondered when it was going to be their turn to expand the boundary.
Just as communities reconsider whether or not distribution centers, call centers and data centers belong in industrial areas, McCurdy and others note that it may be time to reconsider how those resources are disbursed throughout the metro area.
“The land in the Portland metro region is supposed to be like a pitcher of water: You fill the pitcher to the top — which includes the east side — and then the pitcher overspills and you put another pitcher out there after that one,” Knudsen says.
“As it turned out, our pitcher on the west side overflowed and they’re still over there on the east side saying, ‘Hey, our pitcher’s not full yet, when are we going to get ours?’”
That argument may have come too late for VanderZanden as development creeps westward. He notes that his home and the 35 surrounding neighbors lack simple infrastructure such as sidewalks and sewers, never mind the electric utilities necessary for larger development.
He also notes that a residential cluster to his south, which was brought into Hillsboro’s urban-growth boundary more than a decade ago, has similar issues.
Pointing at portions of Hillsboro proper that also lack sidewalks, streetlights and other amenities, he wonders aloud why the city is so quick to put them around largely vacant data centers, especially when French company OVHcloud used existing infrastructure when it took over a spot adjacent to Hillsboro Airport that once belonged to pipe organ maker Rodgers Instruments.
“One thing we do not do very well is full life-cycle assessment of the infrastructure costs of expanding the urban-growth boundary versus development or redevelopment within the urban-growth boundary,” says 1000 Friends’ McCurdy.
Still, Hillsboro’s Callahan and Dias each note that Hillsboro likes to keep land in reserve just in case an opportunity comes along. They cite Reser’s Fine Foods’ move from Beaverton in 2014 and U.K. company Edwards Vacuum’s announced move last year.
They note that they keep a 330-acre site south of U.S. 26, near VanderZanden’s neighborhood, for opportunities such as Project Azalea — a large-campus development once tied to Apple, Panasonic and Taiwan Semiconductor, among others.
But as VanderZanden sees more data centers built and more land consumed, he wonders how many more times he will have to drive to Salem and fight for his home.
To subscribe to Oregon Business, click here.