Public Finance: May 2008 Archives

It is just not easy building new data centers in Washington state, whether you are the world's dominant and hometown software company or the state government itself. Ground breaking on a new state data center was scheduled for this spring in Olympia, WA -- the first domino in a capitol campus renovation that includes an accompanying office complex to headquater the Department of Information Services (DIS), the Washington State Patrol and other state agencies, which would make room for a new Heritage Center near the Legislative building and Temple of Justice.

The Olympian (May 23, 2008) reports in a front page story above the fold that the first first domino won't budge just yet. The price tag on data center complex spiked $110 million from $260 Million to $370 Million, thanks to the rising costs of construction material plus the unforeseen need to mitigate the effects of increased traffic on the neighborhood. (The original $186 Million estimate for the Heritage Center has also bulged to $221 Million.)

What's more, State Treasurer Michael Murphy is concerned about the use of lease-purchase financing for the DIS complex, telling the Olympian, "This project will be the most expansive project on the capitol campus ... yet it is being financed in a way that makes it excempt form public works laws." The project marks DIS' debut as a general contractor, a role it sought in order to create a showcase for technologically advanced and sustainable workspaces.

In an unrelated development, DIS can commiserate with Microsoft and Yahoo, both of which have also suspended plans to build huge data centers in the state. The companies' multi-facility campuses signaled their commitment to enterprise-level utility computing. The viability of the SaaS-ready data centers required economical access to electricity, broadband access and a tax break. The town of Quincy, WA is prepared to make long term commitments to supplying cheap power thanks to the nearby Columbia River.

But the blog Data Center Knowledge reported that, earlier this year, "the state ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises.... Gov. Chris Gregoire requested an exemption in Senate Bill 6666, which would restore the exemption for data centers." The legislative session ended without action on the bill. Without the exemption, a 7.9 percent tax would be due on data center construction and equipment. Some things simply do not pencil out.

The June 2, 2008 edition of Newsweek updates the deepening public sector revenue recession and provides a useful point of comparison. Citing revised data from the Center on Budget and Policy Priorities, the magazine tallies $42 Billion deficit across 29 states for fiscal years 2008 and 2009 (projected). Compare that with the actual numbers from the bone crushing revenue recession that began in FY 2001 and crested in FY 2004. The big number, attributed to the National Association of State Budget Officers, totaled $84 Billion. NASBO's Scott Pattison worries "We haven't seen the worst yet," suggesting the current circumstance could come to rival the fiscal hardships at the beginning of the decade.  During the earlier troubles, there was a compelling argument about the use of digital technologies to permanently change the cost structure of service delivery because the fiscal problems are structural and merit a structural response.  It appears we have a second chance to get it right.