State

Economists: Incentives for Ohio data centers are a loser. So is banning new construction

By Marty Schladen/Ohio Capital Journal
Ohio economists largely oppose tax incentives for data centers, warning subsidies raise electric bills and offer few permanent jobs while boosting utility profits.
Ohio economists largely oppose tax incentives for data centers, warning subsidies raise electric bills and offer few permanent jobs while boosting utility profits. AJ MAST NYT

As electric bills and executive pay at utility and AI companies spike, Ohioans are questioning why they’re being forced to subsidize data centers.

A panel of economists surveyed on the issue last week said the subsidies are a bad idea. But they also said one of the strongest responses — banning construction of large new centers — is a bad idea, too.

The outsized power of utilities has been a sore spot in Ohio at least since 2020, when federal prosecutors revealed that Akron-based FirstEnergy had paid $61 million in bribes to get a $1.3 billion ratepayer bailout. Far from stopping the scheme, Gov. Mike DeWine’s top regulator played a prominent role in drafting the corrupt bailout legislation.

Now grocery prices remain stubbornly high, gasoline prices are approaching $5, Ohioans are losing their healthcare, and the average cost to cool a home is projected to be $778 between June and September.

Part of the increase in electricity prices can be attributed to spiking demand from data centers powering the mushrooming artificial intelligence industry.

Utilities are allowed to extract a profit from ratepayers on building projects intended to meet the spiking demand. That’s been good for stockholders — and highly profitable for the executives who run the companies.

For example, Bill Fehrman, CEO of Columbus-based AEP, was paid $37 million — or nearly $12,000 an hour — last year.

At the same time, the people who control the companies building many of the data centers — Amazon, Google and Microsoft — are among the richest in the world and are said to be in a race to control the AI market.

It might seem odd, but Ohioans are being forced to subsidize the centers even as the projects cause their electric bills to spike and the centers’ biggest product — artificial intelligence — is projected to put thousands of Ohioans out of work over the coming decades.

In January, Policy Matters Ohio estimated that some tax breaks for Google and Meta are so big they amount to taxpayers giving up $1 million for each job created. That money is being gifted to companies the top executives of which have a net worth of $1.8 billion and $215 billion, respectively.

Ohio economists are skeptical of the wisdom of those subsidies.

Fourteen were asked whether they agreed that “tax incentives for data centers are an efficient use of public funds to stimulate job growth in Ohio.” Ten disagreed, three were uncertain and just one agreed.

In the comment section of the survey, Albert Sumell of Youngstown State University made the same point as several other economists — that after construction is complete, data centers create few jobs but lots of environmental impacts.

“I can’t think of a worse use of public funds than to incentivize data centers. They are associated with very few permanent jobs and high external costs,” he wrote.

Ejindu Ume of Miami University was the only economist who agreed that subsidies for data centers were a good idea. He did not explain his reasoning in the comment section of the survey.

As more than 200 data centers have exploded onto the landscape, some Ohioans are calling for a halt. A group is trying to gather 413,000 signatures to put a constitutional ban of large new centers on the November ballot.

Most of the economists surveyed by Scioto Analysis said the economic costs of such a ban would outweigh the benefits. Seven said they would, two said they would not, and five were uncertain.

Michael Jones of the University of Cincinnati said that from an economic standpoint, a ban is too heavy-handed. But he added that the companies should pay for their own “externalities” — the environmental and other costs they create.

“It should be up to the market to pick winners and losers; and Ohio should not be targeting a particular industry,” he wrote. “If there are concerns about energy use or land use, then data centers should internalize and pay the real costs of their deployment.”

David Brasington, also of the University of Cincinnati, said it comes down to the nation’s safety.

“AI is a national security issue,” he wrote. “We need to out-compete rival nations in AI, and allowing data centers is critical for that goal. How would it be to wake up one day and find a foreign nation had broken through our cybersecurity firewalls?”