FARGO-The Fargo City Commission kicked off the New Year with another tax incentive for a developing business in the region, but one commissioner is hopeful that new policy changes will curb the number of tax exemptions the city hands out to businesses in the future.
At the commission's first meeting of 2017 on Tuesday, Jan. 3, a 5-year tax exemption worth $500,000 was approved for Sioux Falls, S.D.-based company Midcontinent Communications to build a new, tier III data center at 4624 28th Ave. S.
Midcontinent, a regional cable television, Internet and telephone service provider, plans on building a 16,000 square-foot center estimated to cost about $12 million. The center will host, store and monitor data services to business customers and employ two to three people.
"This is the type of facility that is in demand for the future of technology," said Justin Forde, Midco director of public affairs.
Forde said the company has not yet purchased the land, but if all goes according to plan the purchase will be finalized by the end of the month. Construction is anticipated to start this spring with data center operations up and running in 2018.
City Commissioner Tony Gehrig, a frequent critic of tax breaks for businesses, was the only member to vote against the exemption. He doesn't have anything against Midco, but he argues as he has with other recent tax deals that the expansion would have happened without the city-approved incentive.
Moreover, he believes the project is not primary sector and shouldn't qualify for the exemption because it's not creating enough jobs.
Forde said Midco considered 40 other locations across the region to have the data center and although the center is not a job creator, there's no other facility like it in the region so it will attract businesses that are seeking services only tier III data centers can provide.
Data centers are in such high demand that North Dakota passed legislation in 2015 to provide tax incentives to businesses building data centers. Forde said that played a factor in deciding to locate the project here. Midco already applied for those state incentives and is waiting to hear back on whether or not the company qualified, he said.
Midco's West Fargo location, 50 22nd St. E., received a Renaissance Zone incentive in 2015 for it's $1.9 million addition and a 100 percent property tax abatement when the original facility was built in 2008. The company, which serves West Fargo and Moorhead already, is in the midst of expanding its service across Fargo.
In Fargo under the current policy used by the Tax Exempt Review Committee, Midco qualified for the exemption, but there could soon be changes to the policy.
"Some of the companies that have qualified in the past may not qualify in the future," said Mayor Tim Mahoney.
For example, employee count is weighted more heavily in the scoring process under proposed new policies, and considering Midco's new data center is only bringing in three new employees at the most, it would likely not qualify for the exemption.
City Assessor Ben Hushka said the Tax Exempt Review Committee policy changes have not been adopted yet, but the committee is reviewing recommended changes that should be finalized next week and forwarded to the commission for approval.
Despite these upcoming changes, Mahoney said companies coming to Fargo and receiving incentives, like Midco, are increasing tax revenue for the city and as a result, "residents are paying less in taxes because we're getting good commercial growth in the city of Fargo."
Gehrig, on the other hand, said tax incentives are increasing people's taxes directly and these tax breaks are amounting to millions of dollars. About 7 percent of a resident's tax bill goes toward offsetting tax breaks given to businesses and homeowners, according to calculations made by the City Assessor's Office for a report in The Forum last year.
Midco is the first tax exemption approved for 2017. In 2016, there were 14 new exemptions granted for either a 10-year PILOT (payment in lieu of taxes) or 5-year exemption. The total amount of exemptions active from past years and approved to new industries and PILOTs-101 properties altogether-were appraised at $200 million in 2016, according to city assessment department data.
"My opposition to incentives should never be taken as an opposition to growth," Gehrig said. But
the commissioner has said he will continue to question "would this project happen but for the incentive?"