Data Center Tax Breaks Steal From Michigan Schools
A new state law incentivizes data centers to come here by offering tax credits for the massive projects, reducing what the state can give to schools
In 2024, Democrat state Sen. Kevin Hertel from St. Clair Shores quietly introduced and passed legislation to give large tax credits for “enterprise data centers.”
While the legislation was intended to bring new business, jobs, and growth to Michigan’s staggering economy, the tax incentives actually jeopardize school funding. The tax breaks proposed by Hertel, and signed into law by Gov. Gretchen Whitmer, are estimated to offer at least $15 million in tax breaks per project.
Sales tax revenue is mostly earmarked for education, which actually translates to a substantial loss for school funding. Every dollar Michigan exempts from sales tax is a dollar that doesn’t go to public schools. A Senate fiscal analysis found up to $52.5 million could be lost through the year 2065 depending on the number of data center projects. The Michigan Department of Treasury confirmed the impact of data center tax exemptions, saying “they directly affect the School Aid Fund, General Fund, and other revenue distributions.”
For Democrats like Whitmer and Hertel, both self-proclaimed advocates for public school funding increases, it’s an odd choice to trade school funding for tax breaks for Big Tech.
Hertel boasted: “Not only do data centers serve as the backbone of our increasingly digital world, but they are economic engines that help fuel long-term community growth. These multi-billion dollar investments translate into greater state and local tax revenue that goes to funding our schools and our roads.”
Data centers may impact local communities, even as the state forgoes tax revenue. A proposed data center in partnership with the University of Michigan received a $100 million grant from the Michigan Strategic Fund.
Not only could this data center potentially receive the expanded state tax credits in construction—but because the property will be owned by the university—the long-term revenue from future property taxes will be lost.
Earlier this year, Ryan Friedrichs—husband of Secretary of State Jocelyn Benson, who is currently running for Michigan governor—praised the U-M data center in a LinkedIn post.
The project at the University of Michigan will also add an AI Concentration Program at the Stephen Ross School of Business. Ross is the founder of Related Digital, and a longtime donor to Benson’s campaigns.
Friedrichs served as a lobbyist and vice president for Related Digital, which is building a massive, controversial data center in Saline, Michigan.
Despite the state’s messaging, data centers are a bad investment.
While data centers replace revenue from the school aid fund with short-term construction jobs, a completed data center is usually run with under 100 employees, making them a poor tradeoff for large tax subsidies.
Beyond fiscal concerns, data centers bring significant environmental and infrastructure demands, including electricity consumption, excessive water use for cooling, and a strain on local power grids and utilities
Data centers have faced significant opposition from Michiganders on both sides of the political spectrum as the projects are announced, and many communities have enacted proactive “moratoriums” on new data centers in preparation.
Last month, Republican state Rep. Jennifer Wortz introduced legislation to enact a statewide moratorium on the construction of new data centers. Her Democrat co-sponsor, Rep. Dylan Wegela is one of the most progressive members of the Michigan Legislature.
The bill will soon be advanced to the Michigan Senate for a vote. Will Sen. Hertel again vote for data centers over school funding? We’ll soon find out.
