Tax breaks signed, clearing way for Switch

A rendering of the proposed data center at the site of the former Steelcase pyramid in Gaines Township. (Switch/The Right Place, Inc.)


LANSING, Mich. (WOOD) — Gov. Rick Snyder has signed two bills designed to bring a multi-billion dollar investment from a cloud data storage company to West Michigan.

Nevada-based Switch will invest $5 billion to transform the former Steelcase pyramid in Gaines Township into a cloud data storage facility that would eventually employ around 1,000 people.

The old Steelcase pyramid in Gaines Township. (Nov. 16, 2015.)
The old Steelcase pyramid in Gaines Township.

The move hinged on new tax exemptions that the Michigan legislature approved last week and that the governor signed into law on Wednesday. The bills provide sales and use tax exemptions to data centers like Switch.

A release from the governor’s office said that 16 other states already provide some sort of tax breaks for data center equipment.

“Michigan has a long tradition of innovation and talent, and is quickly becoming known as an ideal place for high tech jobs and growth of the emerging technology industry,” Snyder said in a statement. “It’s imperative that our tax policies continually develop and evolve to meet the needs of the jobs of tomorrow. The world constantly changes in how we make things, and we need to adapt and ensure we remain a state that continually draws on innovative commerce and new opportunities for Michiganders.”

After the legislature passed the tax breaks, Switch said it expected to start working on the pyramid site soon and hoped to be up and running there by late 2016.

>>Photos: Inside Switch

“If half of what I’m hearing is true, it’s going to be a major impact to not only Gaines Charter Township but to the West Michigan area in general,” Gaines Township Supervisor Don Hilton Sr. said.

Part of the new laws require that the industry meet benchmarks, including the creation of 1,000 new jobs by 2026. State Rep. Ken Yonker, who championed the bills in the legislature, said he doesn’t foresee a problem with that.

“That industry now is going to be able to grow,” the Republican from Caledonia said. “A thousand, I think, is a very easy mark to hit for them.”

BROADER IMPACT OF THE TAX BREAKS

And there are about 40 data centers already in the state that are eligible for the exemptions. It’s estimated that the state will now lose out on $14 million in annual tax revenue from the existing centers. That’s one reason state Rep. Jon Hoadley, D-Kalamazoo, voted against the bills.

“Now because Switch bullied their way in, they all are going to get a tax cut, which could ultimately harm our local communities,” Hoadley told 24 Hour News 8 over the phone Wednesday night. “I think it’s important that people are aware that this is yet another tax shift where corporations are going to be paying less and you and me are going to be paying more.”

Yonker disagreed, saying dozens of other industries in Michigan already receive the same tax break for which data centers will now be eligible.

“You can’t take one industry and say we’re going make them an example and take the state of Michigan and throw us out into the back alley and have us be the losers. … The company’s going to do fine wherever they go. I’m just glad they’re here,” he said.

Other states, including New York, were competing to be the home of Switch’s new data center, which will function as its East Coast hub. Switch said Michigan was chosen because of its proximity to major Midwest and eastern cities — it will take data only 2 milliseconds to reach Chicago and 14 milliseconds to get to New York — and because the region doesn’t have the “obvious increased risk of natural disasters associated with the coastline locations.”

The breaks may lure more data storage companies to Michigan. Muskegon County is already looking to get in on the industry.

“We become an information state,” Yonker said. “And that’s a good balancing of an economy with the manufacturing, because it’ll be as big — or bigger — than what the manufacturing is.”

He said there have been talks of creating a charter school specifically for local students who are interested in that type of work.

Hoadley said that despite his issues with the tax breaks that he calls “corporate welfare,” he recognizes they are now a done deal and he hopes the jobs Switch brings will be a benefit to West Michigan.

TAX BREAKS THAT WEREN’T APPROVED

Personal property tax exemptions for data centers were also part of the original three-bill package of breaks, but that bill was tossed out in the legislature. The expectation now is that local municipalities will work with data centers to sort out tax relief.

Yonker said he was disappointed that the personal property tax breaks were removed from the legislation and said it’s a ‘bad tax’ on business in our state that should be eliminated.

Still, it didn’t stop Switch from committing to West Michigan.

Hilton, the township supervisor, says Gaines Township hasn’t yet received any requests for tax abatements from Switch. He said it’s still early to determine how that may play out.

THE STEELCASE PYRAMID

The 660,000-square-foot, seven-story pyramid off 60th Street and East Paris Avenue opened as the Steelcase Research and Development facility in 1989.

==Below, watch WOOD TV8’s June 13, 1986 report from Mike Murphy on the announcement of the pyramid’s construction. App users can click here to watch.==

As Steelcase downsized, the pyramid was no longer needed and the company moved out in 2012.

In early 2014, Steelcase was prepared to simply give the pyramid to a nonprofit that would have turned it into a school. Then, after some obstacles became apparent, it was decided the nonprofit would buy the property — but that plan fell through in May.

That was because another company wanted to buy the site: Reno, Nevada-based Norman Properties. Norman closed on the property in late May. A representative for Norman said at the time that the goal was to renovate the building and then sell it to one tenant.

The education company — Education Campus Investors — is now suing Steelcase and corporate real estate agent Colliers International. ECI says it had a $3 million sales agreement that Steelcase should be forced to honor.

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