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States selling CIOs on data centers

CIOs looking to set up a data center in another state should stay focused on what it's going to cost in taxes and energy costs.

As a growing number of midmarket organizations look to host data centers off-site, many economic development offices are doing a pretty powerful song and dance to lure outsiders to the their states.

But while cheap land and labor are definitely a draw, they should never be considered more important than the tax rate and energy costs, said Ken Baudry, president of K.J. Baudry Inc. in Roswell, Ga. Everything else -- land, construction costs, travel costs, the availability of labor -- is only icing on the cake, said Baudry, a data center consultant who locates open data center space for his clients.

Consider the state's position. A data center usually means long-term tax revenue and jobs. So it's no surprise that state economic development offices are fiercely competitive when seeking out would-be data center tenants.

Len Capelli, business development consultant for the Virginia Economic Development Partnership, flew west to Carlsbad, Calif., last month to the CIO Decisions conference to pitch his state as a premier location for data centers.

Parked alongside traditional conference sponsors -- Microsoft and Business Objects S.A. among them -- Capelli's pitch for Virginia had the usual: taxes, land and lower power cost. Then there is the more specific pitch: Virginia is close to Washington, D.C., yet parts are far enough away to be a backup in the event of disaster.

"We do focus and attempt to identify the business issue that we're trying to solve," said Liz Povar, director of business development at the Virginia Economic Development Partnership. "It's our goal to be fully prepared so when data center companies come to Virginia, they've got options to choose from."

So the state is selling its most rural counties -- those still within easy reach of the District of Colombia, as prime spots for data centers and backup centers.

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When David Tong, owner and president of Premier Technical Services, was looking for a place to build a data center facility, he looked at spots in West Virginia, Maryland and North Carolina. All fit his basic requirements: Be within 200 miles of D.C. but at least 65 miles out.

"The proximity to Washington, D.C., is clearly an advantage for us," Povar said. "Many data centers are involved in federal government activities." But data centers and especially continuity of operations centers often need to be a ways out of a major city -- anticipating a terrorist attack, major power loss or disaster.

Federal agencies have "talked about a 50-mile radius and a 100-mile radius," Povar said.

That was indeed a consideration for Tong, who in the end decided to build his data center facility in Page County, a community of 24,000 residents about 100 miles from Washington.

As a small government contractor Tong has also taken advantage of Page County's HUBZone (historically underutilized business zone) designation by the federal government, which helps him bring on more federal government work.

"In some of the rural areas, the entire counties are HUBZones," Tong said.

Tong's data center facility will be about 10,000 square feet. He estimates it will cost him $16.5 million to build and he believes he can employ nearly 100 people there. It will also include continuity of operations rooms -- spots for displaced IT departments to move in and keep working in the event of a disaster.

Another big win for the Virginia economic development office is Terremark Worldwide Inc., a routing and data center company. Last month, it opened the first of five buildings in rural Culpeper, Va.

The facility, when complete, is expected to bring 250 professional jobs to the area. In exchange, the company makes out with a $1 million incentive from the state and $3 million in tax breaks from Culpeper County.

It's our goal to be fully prepared so when data centers companies come to Virginia, they have options to choose from.
Liz Povar
director of business developmentVirginia Economic Development Partnership
"Part of the challenge for rural areas in America is the perception that they may not be able to handle or support technology companies, and we've found that that's not true in Virginia and I doubt it's true throughout the country," Povar said.

In planning the pitch to companies looking for data center space, Povar looks for Virginia towns that have a ready and able workforce and facilities, sufficient low-cost power and water resources and are "storm-ready certified."

"We're looking for communities that have a human resource, a talent resource of the skill set that is needed for data centers," she said.

An able workforce is all fine and well, Baudry said. But in his experience, just about every part of the country has the necessary workforce for a data center. Just about everywhere has comparable land and construction costs.

Look at the bottom line

When CIOs take a pitch on data center location, Baudry said, they need to focus on the long-term tax picture and energy costs, both significant differentiators. CIOs looking to lease data center space in a larger facility should specifically focus on finding a space that has direct energy metering, ensuring the business pays for what it uses, no more no less.

Often, data center facilities have an energy cost formula that "can be really unfair," Baudry said. Then again, it may be out of the CIO's hands.

"If [I'm] a small user going into a large facility -- I'm going to lease three racks of space -- I really have to take whatever they give me," he said. "Maybe I'm the client that enables them to kick off construction. Then I would push for direct metering of all my facilities."

Baudry said what part of the country a data center is located in is important only in that it makes sense to be relatively close to company headquarters or a branch office. He suggested keeping a data center within an eight-hour drive if possible.

Austin, Texas; Dallas; Denver; and Phoenix appear to be popular cities for data center location west of the Mississippi River, Baudry said. In the east, Atlanta is popular, as well as both New York state and Virginia, he said.

Let us know what you think about the story; email: Zach Church, News Writer

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