Would you welcome a massive data center to your town if the developer promised your household $1,000 every year? That's the offer facing residents of De Soto, Kansas, in Isabella Ledonne's article, “De Soto Data Center Plans to Offer $1,000 to Households, but Neighbors Say They're Not So Sure.” Norm Van Eeden Petersman examines the deal with Greg Miller of the Center for Land Economics and Strong Towns Chief Technical Advisor Edward Erfurt. The project could bring enormous new property value, but much of the resulting tax revenue may be tied up financing infrastructure for the development itself. The developer is offering residents a cut of the profits, but how much could the community be leaving on the table?
So what would you do if a developer offered every household in your town $1,000 a year for the next decade just to welcome a new development, that's the situation that residents in De Soto, Kansas, are facing, because Digital Realty, a big player in the data center world, wants to build a large data center, and it's offering to put $1,000 a year directly into the pockets of local residents. Not bad, eh? But is there a catch? Welcome, folks, to Upzoned, a podcast from Strong Towns, where we look at the decisions our communities are making and the trade-offs that are involved as we seek to build lasting prosperity in our communities. I'm Norm, and I have a feeling that today's conversation isn't going to make everybody happy on any of the sides.
If you're convinced that data centers are an enormous opportunity, we're going to challenge some of your assumptions. And if you're convinced that these facilities are an enormous burden that communities would be better off rejecting, we're going to challenge some of those assumptions too. Joining me today is Greg Miller, who is with the Center for Land Economics? Greg, welcome to Upzoned.
Thank you for having me.
And also Edward Erfurt, who is the Chief Technical Advisor for Strong Towns. Welcome back, Edward.
Always a pleasure, Norm. I like rattling things up on Upzoned.
That's right. And you're in your familiar seat of being ready to offer thoughtful comments on this, I'm sure. So, at Strong Towns, we do want to see ongoing local investment. We must have prosperous communities, but we've also made clear that development can look incredibly attractive on paper, bring in substantial revenue in its early years, and yet still leave a community with obligations it can't afford over the long-term. That's the illusion of wealth problem that makes things like tract home developments in the suburban development so damaging long-term. Now in De Soto, Kansas, we're not just talking about the upfront fees and long-term taxes that redeveloped property might pay. We're talking about a developer offering to compensate residents directly while simultaneously holding out a hand for public financing assistance for its project, so in that context, it's kind of hard to know whether or not the community is going to get a good deal.
The article describing all of this comes from KSHB 41 News in Kansas City, and it was written by Isabel Ladon just last week. It's called De Soto Data Center Plans to Offer $1,000 to Households, but neighborhoods say that they're not so sure. Now, if we set the context, this is on a 300-acre parcel within the context of a 9,000-acre redeveloped site that used to be an ammunitions plant and has been turned into a space that is intended for industrial sort of economic activity. There's been a ton of state funds. There's been a ton of federal funds used for cleanup, but also for incentives for the Panasonic EV battery plant, as well as now the data center company is saying, "Hey, can we tap into some of this as well?" However, the challenge is that they are not necessarily winning people over, so one of the things that they have opened up the conversation with is this $1,000 household credit that goes for 10 years. so in May, Greg R.
Miller, you wrote a piece in Progress and Poverty titled "Don't Reject Data Centers, Negotiate Harder," and that piece was in the progress and poverty substack, so I want to start with that. How do we negotiate better, and what should we be grappling with as we think about this situation in De Soto?
Yeah, I think it's worth starting. My standpoint on AI going into this is that I think AI is real because I think, and I think it's important establishing that upfront because I think a lot of this backlash that we're seeing is a lot of folks are looking at AI and thinking that perhaps this thing's not real. Why are all these data centers popping up? Why do we need all of this compute? I do believe that we need this compute. I think we need a lot of compute, and we're compute constrained. And I think that AI is a very serious technology that is only going to grow more serious. so, at the time, I was looking around and seeing a lot of folks who thought that data centers weren't needed.
I think this is wrong. so at the time, I wanted to sort of talk to those individuals where there was a lot of misinformation around what data centers were, what they were doing and how harmful they were, say for water supply and sending high to ChatGPT is the equivalent of drinking five gallons of water, right? All of this ends up being incorrect, but there are legitimate concerns around the rate of data center development, particularly around where the energy and electricity is coming. From, and meanwhile, these are many billion-dollar projects that are being installed in small cities, so all of a sudden, you have more property value than a city is ever used to. And these data centers don't really, unlike manufacturing centers, which have perpetual jobs, they don't have that many perpetual jobs associated with them, so cities are used to giving out property tax abatements to bring jobs into the community for many years because that long-term will increase their sales and income taxes as well as their property values.
This is not necessarily true of data centers; they don't have spillovers for property values or real estate values, so I think it's a really interesting circumstances that cities are not used to facing. So cities are used to thinking, oh, it's good when we bring large amount of dollars into our area. But the calculus breaks down a little bit differently when you think about data centers. so that's where I'm saying, data centers are these billion, multi-billion-dollar projects that are going to create a ton of money. They're profitable. Anybody you talk to in the data center industry, there's a reason why we are seeing record levels of them being developed. They are insanely profitable right now, and compute is going to be the natural resource.
It's going to be the oil of the next century, right? And if this is true, then our cities need to find ways to benefit from this. so I just wanted to use that article as an opportunity to say there's a way out here. We don't. This is this isn't a yes or no decision as to whether a data center exists. There are options here for the city to benefit. I think that we should explore those options. I think this is a unique instance where data centers are starting to catch on. That they're going to have to do more because people are worried about data centers coming in, and I think it's that worry, honestly, that gives cities some negotiating power as well, right?
So there's a little bit of game theory in here, and in fact, residents still pushing back, they might be able to leverage to get even more money, right? so there's a lot of game theory here. But I think my article was simply that we need data centers. The United States needs data centers. We benefit from data centers, and that we should figure out how do we make sure those data centers benefit communities and cities that they're installed in.
I appreciate the way that you've laid that out, Edward. What about for you? Some of your initial reactions, kind of what stood out.
Well, Greg, you must be the most popular person in the room pushing AI and data centers. I always I find whenever a new use or technology or reintroduction of something to a community comes in, there's all of this fear, and a lot of it's rooted in kind of the last eight decades of development with our diminishing returns. So we've got this colliding thing of big corporations and energy usage and development and change it all kind of collide. And right now, at the crosshairs of all of that are these giant data centers. And it is it is that utility. 20 years ago, every community got the self storage center, right? Because we all had stuff, and we were downsizing and moving around, and we had all those places to put our physical stuff.
We have way more of our digital stuff out in the world, whether we know it or not. Our devices are generating all of this stuff, and it needs to go places and move places. So yeah, I think this is that next progression of technology, and I believe that for most communities we haven't figured it out. We haven't figured out all those pieces, and I find the being on either side of this pro or against isn't helpful. I think what's being helpful is really identifying where these struggles are on these pieces, and I'm with you. I think this technology is going to come forward. I'm actually thinking about it when I think about my parents or grandparents' generation and about what a supercomputer looked like at that time, was a calculator that filled up an entire room.
And where are we going to be in five to 10 years? Are these things going to the equipment we need? Is it going to shrink down to the technology that's now in our phone and that smaller piece? I'm also really interested in the energy production from these, there are there are benefits that could come off of this. When we think about the, I worked on an industrial development, and one of its byproducts was heat. So this is the one thing that was giving off of that, and they had a facility that they had developed at another country that used the heat circulated through the town to basically heat the town, so its waste product became an energy source. So again, it's this evolving technologies.
When I saw the story, I got over the data center piece. Like I recognize this is a volatile discussion point, and I started to look at what this community was doing, or let's say the state were laying out to welcome in this facility. That I think we all agree they're going to come about. It is a necessary piece of our infrastructure that we need if we want to have all of our pictures and text messages available on instantly available to us,
but what they're laying out and how they're selling this to folks is what really caught my attention. Well, in the $1,000 per resident, let's let's start with that because that's that's the piece where you're like, oh, that's new. And digital realty said, yeah, we haven't tried this before, but we thought, hey, with a smaller population, about 7000 live in De Soto, we can provide them with an offset of their utility bills. And Elena Pitt in the Strong Towns Commons made the point. She said, "it's a little bit on the nose to say that hey, we're going to have to offset your utility bills on the presumption that many people are offering that your utility bills will go up. But don't worry, we've got you covered for at least the first $1,000 in yearly increases." so it is striking to me that you have a company that is entering into a community, they are putting the data center in a place.
To me, it seems like belongs in an industrial park, not near, in close proximity to residential homes. It is in a space where the state government and the local government have rolled out the welcome mat. They have invested, $248 million in infrastructure improvement in this 9,000-acre site in order to build it and have people come so they got Panasonic in. Panasonic built a $4 billion EV battery plant, although I don't think all 4 billion have been spent yet. And they are using about 300 acres, which leaves still a lot of land for it. And yeah, the recognition is well, we need to make this a win for everyone, and in a traditional sense, a win-win for everyone is we have new people at the table paying property taxes, and that to me is so interesting that we can then use those property taxes and the sales taxes that come with it to cover the cost for our swimming instructors and cover the cost for our fire chief and other things.
Here they're saying we want to provide a shortcut of $1,000 to directly to the resident into your pocket, but we don't want to take our table when it comes to tax time, or we don't want to take our seat at the table. I mean, when it comes to tax time, instead, let's defer that and in fact, or layered into that is not just the defer it because they don't want to pay taxes, but because they're using the deferred revenue as the financing for all of their upfront infrastructure costs, and that feels very different. If someone showed up my house and gave me 20 bucks, but then said, "Oh, by the way, I need you to now be contributing what otherwise I would be contributing to the rest of this party, I'd be like, well, so long as we don't go over $20, we're okay.
But longer term, this will be a real challenge. so, does money buy community trust? Have we seen this before? Is this something that we should be alert to? I've seen this with developers, where developers will pay out particular landholders, and all of a sudden they have an extra vote, and that seems to be enough to get the process passed through. And sometimes you do that just to make the problem go away and get to the answer that you want. Greg, what do you see in terms of building lasting prosperity and trying to help people out of poverty? When we think about those types of efforts, is this a viable strategy?
Yeah, I think when I read the article, there were some folks equating this to a bribe, and whether you view it as a bribe or not, in some sense, it's the community who exercises power over what's able to be built in the community. The community votes in its local government, so sure, maybe it's a bribe because they're paying for something, and a politics is involved, or government is involved, and the data center is trying to get this development off the ground. But in other ways, I think this is the perfect scenario, at least in principle, where and maybe not this one, but the idea of a data center development paying back to the community, and particularly just directly to the residents, so that way, the residents gain and the residents can use that money more flexibly.
And this, to me, is a great way to figure out who profits from these projects and to redistribute some of those profits at minimum. But I think you bring up an interesting point because I started diving into the numbers a little bit, so this is my preliminary dives. If we fact check these, they might be wrong, but it's my belief that this project would pay somewhere between 20 or $30 million a year in property taxes. To your point, though, they're they're going to quote pay those, except they're going to pay those to basically pay for the infrastructure they need, anyways. Now, if this infrastructure is infrastructure that the entire city benefits from. And this is probably good, right? But it's unclear if these industrial wastewater plants are really for the rest of the city, or if it's just for this one project.
To me, it feels like all of this, tax increment financing funds are probably being used to just fund this project's infrastructure needs, as opposed to a citywide needs. so then we're looking at they would pay 20 to $30 million in property taxes, but instead that the city doesn't collect that. It's just being used to fund the infrastructure needed for this development, basically being used to fund the development, right? If this is true, so then they're instead going to contribute $2 million per year. So this is like a 90% discount, right, on property taxes, in some sense, so you can think, okay, this isn't whether you call their bribe or not, this is directionally correct. Now the really hard part is where do we, where is the game theory optimal outcome here, right?
How much money per year for these residents beginning? It's important to realize that this data center is being installed in a in a population of 7000 people, right? the dollar amount of this data center isn't because the population. This could be a town of 10 people, and they could install the same $6 billion project, and they could say, "We're going to give you $1,000 each," right? so, so then it's $6,000, right? That does nothing. So the population is sort of arbitrary here, which means that them saying $1,000 sounds really good, but maybe it needs to be like $3,000 because we're talking about a small population, a small amount of households, and bring that number up. so I think these are the areas where the community has leverage to negotiate and figure out what's right, so to sort of round all of this out, this TIF funding to me is interesting because possible that it's just being used to fund infrastructure just for the project, but it's also possible that the project would not choose to locate in this city if that TIF funding weren't available.
This is, traditionally been the argument with TIFs. It's like, does the TIF actually counterfactually create new development that otherwise wouldn't exist, and is this better for the community? My take on this is, data centers are needed no matter what, so probably a community can get away with not doing TIFs that only fund infrastructure for the data center. But I will say, I've been in communications with Rob Moore at Scioto Analysis. He's an economist that I really respect and who has concerns and shares some sympathies. But his recent analysis, he's starting to think that maybe tax exemptions do encourage more development in cities. so, there's reasons to believe, particularly recently, that a third of projects wouldn't have happened if the local area didn't offer some form of tax exemption.
I don't know where to break down on this. I still my sympathy still lies with the fact that data centers are so profitable that there's room to negotiate here. But I do want to just flag that there is arguments against my standpoint. Yeah,
and De Soto is interesting because they have an older brother that went off to college already and is already starting to like be a factor in the in the in the in the family lore because the Panasonic plant in 2024 I went and looked at the city's numbers so the city collected $1 million in property taxes that went into general fund but then another 3.7 million dollars in sales taxes. There was an additional 3.3 million that came into their city accounts, but that was immediately earmarked for the Panasonic TIF. So you could take 4 million, just over $4 million comes into the city annually in terms of revenue, and now there's an additional 3 million coming in from Panasonic, they're like, "All right, this is amazing." Trouble is that 3 million immediately turned around in order to pay down the 166 million dollars that Panasonic spent on their property, meaning that money that came to the city then immediately went back to Panasonic.
The argument there is that plant is employing 1,800 people right now, so that's 1,800 new entrants into the community, driving up housing costs unless there has been adequate housing provided. But I digress. Out of that, the question is: Is the next child to leave the home going to do so in a similar way? And I would say, actually, there's something very fundamentally different here. That this is a large project that is going to employ very few people. So yes, the earnings per individual are going to be quite high, but they will not be employing anywhere near the 4000 people that are planned to be employed at the Panasonic plant. And the longer term reality is that they are starting to use up more and more of this 9,000-acre parcel on uses that have less and less return for the community, so of the 9000 acres that they've remediated, the first 2200 are set aside as parklands.
Great, we want that. That's that's a good thing in a community. Then another 300 went to Panasonic, and now 1400 is being proposed for the data center, which means that there's only. A remainder of about 5000 acres left, still lots to work with, but the same article mentioned that there's now a 3000 acre solar farm being proposed for that location, which really struck me. I thought that is not a good use of developed land that you've made possible through massive tax breaks and giveaways and send of some things like this, and they're still coming up against only having now 2500 acres left to be able to generate new jobs and create new logistics places and things like this. And my concern from a strong town standpoint is always, if you have land, are you making good use of that land, and is a data center when necessary.
Is it is it something that can be done in a more compact built style? To me, that's one of the important things that we should ask when we negotiate. Is there any way that we can make this multi-story? Is there any way that we can use less land in terms of the actual footprint and create more efficiencies in that way and create a better return on a value per acre basis. Having said that, what Greg your article does a good job of saying is, hey, look at what was in some of these locations. Very little, low productivity in terms of the land use. It's now some of the most productive land in the in the county in Loudoun County that you had studied.
That means that's trending in the right direction that can be useful, and my certainly my concern is if you are giving away a lot of the revenue that you would otherwise be capturing. The question is maybe you should just say our condition is that we capture the revenue up front. That would be to me a suitable negotiating stance. But Edward, I know that you're making notes feverishly, and you live right in the midst of a lot of data center development as well. So, shed some light on what the folks in Kansas might be expecting. Well, I'm just thinking about this, like how many,
how many 15,000 acre decommissioned ammunition plants exist in the country. So, Greg put up a great point. Is it because of the TIF, the tax base? No, frankly, at least in the Northern Virginia, the data centers are here because this is where the fiber capacity first existed. So it's kind of like why were mills put along rivers in New England. It's because that's where the energy source was to get the mills to run, and then ultimately the transportation corridors. So the data centers are using a different construct with that. So I suspect underneath this really unique 15,000 acre site, there's probably also things we won't talk about that are infrastructure that helps feed that data center and all the technologies there.
So, how many places could this go? That kind of sets it in. When we look at that place, what infrastructure did that ammunition plant need? It needed lots of space, right? Because it's creating things that go boom, so everything had to be kind of spread out. When I look at the infrastructure that we're putting in for this, of course they're consuming all of the TIF. When I look at the, I mean, they have some of the nicest roundabouts that are in there, and I mean, I don't know the data centers I see around here, maybe, maybe there are two or three people that have to be there for security, but it's not like a factory or a subdivision where you're going to need four-lane roads and roundabouts.
Frankly, I think for the data center, you probably could get away with a dirt or gravel road to the data center, you really don't want people there. You're going to put all the fencing around it. So, when we do these projects, I think we've kind of we're like we think big numbers. Like I've I've been in the room with the economic development folks. Like, hey, we've landed this billion dollar project. Let's do equivalent billion dollars worth of private infrastructure, or public infrastructure associated with it. So we'll make sure we extend all the way out there the water and sewer, because of course something else will come in. And let's go ahead and let's get all the right roads in because we want to build it to a finished state.
We don't want to ever slow down all the things that could happen out there, but in all of these areas, look at what the neighbors are coming in. We have Panasonic with lots of people and land consumption. It's going to have some shipping. Then it's Norm as you described. It's little brothers coming in. It's going to be this huge data center. So initially, lots of people and a giant box, but we're not going to want very many people there except to service the limited pieces of that over time. And then what happens with like the stepdaughter that comes in, which is this giant solar array that we never want people on. Like once we chuck in all the panels, it's self.
Yet we're asking all of those to pay all of that infrastructure. So did TIF make it happen? I think TIF actually became kind of like the alcohol at the party that helped everybody make bad decisions. it made everything so rich. The only thing that TIF is doing here is getting all of that money up front day one. So all of that infrastructure we could build all of those things. Clearly, these investments are going to generate revenue that will fund and maintain all of that, but we won't get that year one. It's going to take four to five years for it to get onto the tax rolls, but because we're building everything up front, we need to have all the money up front.
And then, what does that do on the decision making? It asks us to do all the fancy new high end stuff at the front end. Frankly, with all of this, I know Greg's done the math. I've I've looked at the math. I don't think anybody in town has done the math because $83 a month for like a utility kind of payoff. I don't think anybody can tell us if that actually is adequate enough. I don't think anybody can tell us does the city actually have enough equipment to maintain? Let's just say mow. We're gonna mow all of the like. When you look at all these streets, we're gonna mow the grass and the rights of way. Like, how many mowers and people do we have for that?
And that's even before lifecycle costs, Weather things, treating for snow and sleet. So I see this more often than not. The only math we do are the numbers that somebody is investing. We don't actually look at those long-term costs or what those impacts are, and it could be on this type of investment a spectacular win for this community, but I don't think we have enough facts to know that.
And that's not helped by the fact that De Soto, Kansas, like almost every municipality in Kansas, uses cash accounting and doesn't actually follow the standard practices for reporting out according to an annual comprehensive financial report. So their own auditors' reports say we know that you're allowed by law not to follow the best practices in terms of reporting your capital, your assets, all of your infrastructure, all of those things. The things that the Strong Towns Finance Decoder is really helpful in laying out the longer term trajectories for the community. I went to fill out the Finance Decoder for De Soto, and I was like, "I'm stymied. There's nothing here that I can enter in." And I think that creates then the challenge that they know how much money came into an account last year and went out of the accounts.
But if you take just a moment to try to follow the chain of money moving through accounts and all of those things, you quickly lose sight of whether or not the community is solvent, whether or not the city knows what its long-term financial obligations are, so it's it's a near-term choice to say we're going to spend a little bit less on the auditors, so that way we don't have to produce lengthy reports about the state of our infrastructure, or at minimum, just the when did we build stuff, and when is it likely to need to be repaired, and that information is not available to the residents. It's not available to the council members, so it's going to be a situation where big dollars are going to talk big, and yet over longer term, you're going to face a real challenge dealing with all of those things for sure as you carry those long-term costs and the Panasonic deal resulted in a new fire hall and a $1.85 million fire truck.
I was like, oh, that must be a really nice fire truck. Doesn't include money for the firefighters, so those operating costs have been driven in, and they are not even collecting the property taxes now to be able to cover the costs of those firefighters. Actually, no, 185 that's a pretty cheap firefighter over time. But Norm, I also find like what I find really interesting with this. We kind of skipped over the fact that
if we're a good neighbor, like when we move into a neighborhood, there's certain norms and things we have to do year over year. Believe it or not, I'm a bit of an extrovert at like, there's certain things getting out there, but like we have to go do those things. We need we need to participate. Make sure our kids go to school. We then have to volunteer on the softball team. We have to go and vote and show up to council meetings and participate in the picnics in the community and all that sort of stuff. So this is a long-term investment that we make in those areas. But when you come forward. With this building with no people in it, and you come up in the at the get go and say, "Hey, we're gonna we're gonna determine what we think our civic engagement is gonna be, and we're gonna just gonna cut a check.
Like we're just gonna cut a check, and that's gonna cover everything. And whether it's we cut the check for the fire hall day one, or we're going to cut a check to every resident. I think that's such an easy out. Like I think there's lots of us that would like we don't want to do lots of people. So what's the check we can write so I don't have to show up at any more PTO meetings? but that's not the way
way our civics work. Yeah, this company is not putting a float in the parade, and I love that like quick like litmus of like if they have a float in the parade, that means they're a local company, even if they're a chain. But if they represent themselves in the local parade, like that's when you're dealing with a top drawer institution. Yeah, Greg, what about for you? I mean, I find that there's a few things that I want to say. I want to start on just like this political economy issue because I think this idea of
the developer knows all the numbers, right? That they have, and then they created this TIF district, so even like the millage rate is sort of arbitrary to them, right? So you could have a 1% or a 2% tax, and they're just finding ways to spend that money, right? They were going to put a $6 billion development in, no matter what, so they're just finding ways, whether the millage rate was 0.5% or 2% to spend that money on infrastructure for themselves, right? Is probably the way the developers thinking about this, and the city probably doesn't know that, right? Now I could be wrong, but I think that these small cities, right? We're talking about a city of 7000 people. What are the odds that you have a municipal finance expert there who's elected to office?
Right. I mean, they probably had to become a municipal finance expert, but not to the degree of a lot of our cities. so, I do think there's something to be said about creating statewide or regional planning, entities to help with these sorts of decisions to figure out what is correct and what these numbers actually break down to, and how to think about this TIF, and why does a TIF?
Wouldn't they conclude though that it should go in the special enterprise zone, right? Like, so it does seem like on a location basis, putting it right in the heart of this thing makes a lot of sense. But to me, it's interesting that it creates and engenders a pushback, and as a result, they're up front saying, "All right, we're gonna we're gonna do our best to be good citizens by giving that this money away right up front."
This is the data center, right? I think I think the data center is smart and knows that there's going to be political backlash, right? so this is their way out, right? So this is their first negotiation, right? This is their first attempt. They already know they have the TIF district, and they found ways to spend that money. Presumably, we don't have all the details. To Ed's point, we this conversation is a bit speculative because we're not in the weeds, but also probably nobody is in the weeds from the city side, right? And that's the part that's a little bit concerning. But that said, I think that this is one. I think more data centers should just start doing this out the gate, right?
They should just, and it's probably in their business interest to do it because they can get their projects online quicker. But also, if they're smart, which this one might be. I don't. Again, I don't know how this one's operating, but they could be understanding that things could be worse, and they're actually still profiting off this TIF, etc. so, and that to at point how many of these munition sites exist, right? To actually build data centers, this is a very good spot to build a data center. And to that point, I mean, the land was bought for $300,000 an acre, so when we talk about the value, how valuable this land is. It's extremely valuable. It's extremely valuable not for housing, right?
It's extremely valuable for data centers, which to me it's kind of surprising that the solar. I kind of am very confused by the solar thing as well. So we, I'll I'll just leave that to the side. The two other points I wanted to make because you brought up Loudoun County, and I think it's worth reminding folks that data centers have existed for a long time, and Loudoun County is the wealthiest county in the United States and has the most data centers. And because of that, they have some of the cheapest electricity rates. Their electricity rates have not seen the inflation that surrounding counties have, as well as some of cheaper property tax rates. Their property tax rates have remained pretty flat while other property taxes have gone up, which I find interesting, but I also think that we shouldn't over-index on that because Loudoun County was a slow increase in data centers over time.
What we're seeing right now in some of these communities is just an all of a sudden huge increase in data centers, and they don't know how to negotiate. Right, Loudoun County has been able to collect the tax revenue from data centers, so I think that's that's very important. And then there's there's just one more thing. I think that there's all the economic issues and the finances, and then there's the electricity side and the energy side and the ratepayer side, right? so one of the things I find interesting is I think the data center should also think about buying heat. Pumps and batteries. I think Rewiring America has this idea out there that if you buy the heat pumps and batteries for everyone in the city, that helps with your electrical demand.
And electrical demand is the big issue when you have data centers because all of a sudden you're introducing a whole bunch of demand to the grid. so this perpetually will help with electrical demand and perpetually bring down ratepayers the amount of electricity they use, so bring down their bills. so, to me, this is another idea that's worth considering, and finding out instead of 1000 a year, you would give 10,000 upfront for the installation of heat pumps for every resident of De Soto, and actually taper down the demand for electricity at the very point when you're going to be ramping up that demand on the data center side.
That's interesting. Yeah, and pair it and pair it with money too, right? so, so
yeah, do both is probably my ideal. And yeah, just protecting the ratepayer risk, right? So there's these new coal plants going in Kansas. I was trying to figure out where the electricity is coming from, and it appears these low coal plants and Kansas appears to have a very large low tariff, like a 12-year commitment that these data centers are going to have to sign. Although there's carve out, so we should just check to make sure that this data center doesn't have the carve out. This to me feels good, but this is a 40-year investment in power plants, so probably some sort of insurance mechanisms in case AI is a bubble and all of a sudden demand goes down, or probably more likely, like in case we create some sort of compute device that's incredible that's like atomically efficient, right?
Like efficient at like a different level, that doesn't use metals or whatever, right? I don't know. We don't know where things are headed. It's going to be a strange future. But where you have one acre data centers instead of 300, you're like, oh, all of you with your 300 acres, those are your albatrosses, and we can do in one acre what you could do with 300 acres. Yeah, yeah. Now, if we if we're in that world, we're probably in a world of a lot more abundance, that could offset like the financial losses of whatever energy demand. So probably is not as much of a concern, but still worth considering. How can we protect ratepayers and surges in electricity demand? so one other proposal that I've seen out there is to force data centers to use less during peak hours to preserve ratepayers during the day.
This is something else to consider. But I think there's another side to all of this around electricity, and I think electricity is very and energy is such an interesting market.
Well, before Greg went and gave everybody free heat pumps, he said something that is definitely going to get him in trouble, and I want to separate from it. And he was he because I grabbed that third rail a couple of times, and he said something about maybe people in town when it came to the budgets weren't in the weeds of looking at that stuff, and I agree. But let me put this caveat to get us both out of trouble. I think when we look at, and I'm I'm looking through the town's budget because the way that they're doing their audits are not the way other cities do that we've been using for the finance decoder, and what we found, and Norm can attest to this.
Every community we go to, they love to hear about housing. They love to hear about bottom-up approaches. They love to hear about safe and complete streets. But as soon as we get a transparent local accounting, it's like hands off. That's our money. Don't talk about the numbers that we do or do not have. What's interesting in their in the budget documents we see in lots of cities is that we're not actually asking the questions that you've identified that would be in the weeds. What we're asking these finance officers in these cities to do is to balance the budget year over year, and in a place where we see this type of growth in De Soto, Kansas, and you can see in their budget they're in that early growth cycle where they have lots of building happening, and their budgets are growing up, and they're seeing that in their projections, and they're making investments this year off of that.
But what we're not asking is what can we as a municipality, keep up with all the promises that we've put in? Like, how many more new fire stations and new fire trucks could we get year over year? And it's like that well is drying up very quickly because they're real. Like, yes, we're talking about 10,000 acre developments at a time, but there's only so many of those in this community. There's only so many billion dollar investments that they could have because they've used their finite resource of land up. And if I look at their budget projections, they're actually seeing a, if I understand it, they're. Projecting a big decline in property tax over the next few years in their community, so yeah, the weeds we're asking them to get into are the jungles they haven't explored yet, and what we would ask them to do in these numbers is to really go in.
Yes, let's accept that gift today, if we think we need a new fire station, but if we're accepting that gift, the math that we're asking that no city is actually laid out. What is the annual operating cost for that fire station? What is that depreciating value? Because it's truly not an asset. It's like mr. Beast giving somebody a jet airplane, like great, you want a free airplane that's worth millions, but guess what? It takes 400,000 to fill it. Are you able to do that as a 16-year-old that just won a jet? No, and I think we see that in these communities. So as we look at this in these numbers, I would, and when it came to all the gifts and all the things that the community is coming forward, as somebody that's been on that side of economic development, especially in a smaller community, often when these things come early in, the development team, the factory or use coming in, they all want to give something to the community.
They definitely want to give back. They know that they're the giant beast in the room. They're the new kid on the block, and this dwarfs anything else the city has done. And I'm sure somewhere along the line, a community member, the mayor, a council member said, "Oh, we've been trying to build a fire station for all these years. We've been hoping to get a new elementary school, or everybody in town. We go and we buy at the fair all of the 4-H kids' animals. We bid all those up, so they have their college fund. So that's what these. When we're at the table, we're talking about somebody that has the opportunity to invest a billion dollars anywhere in the world, and they've come to a community that probably for many years had the one federally backed program in town, it is a whole different ball game.
Yeah, because that's like that. Fully agree. Going to decommission from 1993 to 2015, so that's a long time when you're having 9,000 acres sitting out, not doing anything, and actually being a net drain in terms of jobs that had departed and all of those things. So maybe a couple of quick takeaways. Go ahead, Greg. Respond and then take away.
Yeah, well, I was going to say fully agree and think that this is where I think technical assistance at maybe states setting up task forces for these sort of technical assistance to communities who aren't used to these scales of things because obviously they're used to running their budget annually. They're not used to $6 billion projects coming in, so I think that's where one of my first takeaways comes from is this political economy issue, right? Of you have these developers who have a whole bunch who have $6 billion to put between different cities, and in Ohio, what we've seen is a developer going between two small cities, and being like, "Well, they're offering me this property tax exemption, they're offering me this one, right?
And this is behind closed doors. And it's like, okay, we can solve this race to the bottom by, at the state level saying no property tax exemptions, so that way these cities aren't competing against each other. This to me feels like a good idea. But I think what we're really doing is we're playing a game of business negotiation, and the game is you're a city and you're trying to get as much out of a data center as possible without eliminating the possibility of the data center being developed. so, what you're trying to do is you're trying to optimize the finances for your city and for your constituents. So long as it's not negative, right? If it's negative, then don't build the data center at all.
But I don't think these are negative. I think these are win-win situations. I think the data center can profit and the community can profit, but we need to figure out how we can put more negotiating power behind cities, so that way they can figure out how to toe that line a little bit better and how to run these negotiations better. Because more than likely the data center has put out this initial proposal, but that is the first offer, right? so if we understand this from a game theory perspective, I think we should understand that there's probably more to be gained, but I don't know how much more. And I think that's where we need some more, some more thought, some more details, and also hopefully states start providing cities with experts on this front to help these sorts of negotiations.
So I think just thinking in that way is very helpful of what we're trying to accomplish.
Norm, my takeaways to it is that there's a lot of math involved here. So let's take the win. Great for Kansas, great for De Soto. You've taken this decommissioned arbitrage and you've actually begun. To create some revenue generation off of it, but before you start building more stuff, accepting more gifts, let's really look at the math behind this, because it may actually not be an ask. Like with this much revenue generating off of these properties, because TIF is based off of the growth of the tax base. If you just rolled the tax base into the city accounting, what would that look like? What if we just invested that in the city? So when we talk about that, really getting into that math, and I probably shouldn't, but let me let me put the pitch out there that I think if folks in Kansas are hearing this, if somebody in De Soto, the mayor or city council, that they should go and talk to Greg, get on the phone with it, have his group, the Center for Land Economics, come out and help them get in the weeds, help them do that math just to know where they're at, because that is the work that in most of the cities we are not doing.
And for somebody like Greg in Land Economics, when they do this work, they're like fluent in it. they look at this stuff like the Matrix and they see all that coding, and they're like, oh no! Here's this push-pull moment, and when elected leadership and city administrations begin to seed that in front of them, they make completely different decisions. It doesn't mean that we won't get a fire station or a new school or a new road, but we will be way more informed in those that decision making, and maybe we might actually make a slightly different decision, or ask, or shift the direction on something when we fully understand those long-term impacts of both our expenses out, but also our revenues in.
Yeah,
my takeaway for city leadership in De Soto would be how easy is it to get a food truck going? How easy is it to open a front yard business? How easy is it for you to rent a garage to somebody else in your community to be able to be a mechanic or do the small things? Because one of the challenges that we face is that we've we've lost sight of what it means to do things at a fine scale, and this really stands out as I think of other things that may follow in the same sort of path or trajectory that data centers will go on, greenhouses for the legal production of marijuana. There was a sudden rush. Every place was even being asked, "Can you incentivize this because it's a it's a sure thing?" Call centers.
Remember that AI has basically taken out all of the call center industry. Dispensaries for marijuana, crypto and Bitcoin mining. Remember that passive income for your community. All you have to put up with is a bit of a hum and some heat. We had every state offering their own option for Silicon Alley, Silicon Prairie, Silicon Mountain. You see this with mega factories like Foxconn up in Wisconsin, or the EV plants that are out there, the semiconductor chip plants, all of those things. Richard Florida's creative class. Hey, let's just be the creative class city, and we will basically secure our everlasting future. And now he's moved on to yet another version of a creative class industry. In my state or province, we have film, movie, production credits that blew a huge hole in our provincial budget, because we are Hollywood North, not to be confused with Hollywood Alberta, Hollywood everywhere else that is seeking the same sort of sources of quick easy funding.
But it is about that building lasting long-term durable prosperity, so yeah, fascinated me. Let's move into the down zone and just lighten things up a little bit. I know that Greg, you have to go right at the top or bottom of the hour here. So why don't you go first? What's in your item? Something that you're taking in that you're inspired by? In yeah, that you want to pass along. Well, it's it's the down zone. So not related to anything we've talked about or anything too fun or anything too nerdy here is I watched you can see everything last night and this is the new Nathan Fielder movie with Elizabeth Holmes
Nathan Fielder deciding to do a documentary to me and on a topic of Elizabeth Holmes to me I felt like there's no way you can pull this off in an interesting way even though I love Nathan Fielder and he did it, so I think it's just like one the movie. I don't want to spoil anything. I will just say that my perception is that Elizabeth Holmes is manipulative. That's my takeaway, but there's debates on that, and I think the more interesting part is that somehow he took this topic and him being like not a documentary maker, being not somebody who should be interviewing Elizabeth Holmes, and made something really quite fascinating that really gets into some like interesting human, human personalities.
I found it very cool.
Believe in the hype, and then just going and going and going, extend and pretend. So many of these things. Seems to really be on topic. Actually, go ahead, Edward.
Well, it's really cool. There's in my community, my county, there is a little temporary pilot project that I want to gush on a little bit because I've had the opportunity to go hang out in a couple of times. So, out in Shepherdstown, West Virginia. There is a historic market building with roads around it. It is all for at least 30 or 40 years. People have thought about how can we make this a people place, so it's not just cars. And the historic building has been hit a couple of times. The last time it almost collapsed with the construction. But one of our cohort members, Leanne Evison, is a recent transplant to the city. She reached out to the city and said, "Hey, what if I could get an AARP challenge, community challenge grant, to help fund the idea to close this off for a little bit of time, and create this cool little public space in the middle of our city as a pilot project.
This idea of a small bet, and the city, I don't know how many arms she twisted, but it came about. They actually received the grant money from AARP, and they did this pop up at this plaza space, it is absolutely amazing, and it's fun to see that. Norm, you and I will go to cities, we'll talk to people, and say, "Hey, let's try that next small step." Hey, let's go look what this town did. Well, to see it firsthand and be here on the ground and know all the players and really be in into that has been so interesting to see. So this space out of nowhere has been completely populated with every type of event. They're doing yoga in it.
They had a little theater event. They put tables for people to play games on it. We had a local conversation meetup in it. It just is this really cool little space. So for all of you that are out there, I just want to put a little bit of gushing piece on it because I thought it was really cool that people should check it out. That yes, these are tough things, even just putting up a couple of bollards on a street. But once people get the opportunity to kind of test it out, the whole conversation has shifted about this in the town. That there's the apprehension is kind of mellowed out a bit because everybody got to experience it. And I will tell you, when they first put the drawing up, everybody was like, "Oh, I don't know all these things terrible things will happen, but when they did it, the whole community came out and embraced it, and it was it's kind of fun to watch the visitors of the community come and embrace the space in a way that town really does incredible stuff.
So a little geeky bit, but anything happening in my neck of the woods, that's really incredible. Especially like one of our cohort members who led the charge on this. It is it is something to be elevated and shared,
and creating that outdoor living room space. And I just think there's so much value in that. And we always like to say, make the good visible long before you make it permanent. And I think it sounds like they've managed to do that. My quick item for the Down Zone is the Blackthorn Key series by Kevin Sands. It's young adult or a youth fiction, and it's about a 14-year-old apothecary in 1660s London. It's really light, easy reading. I read through the entire series really quickly on a summer break, and now I'm rereading it with my son Elliot and really enjoying that. so I'm reading it out loud, trying my best to mimic my wife's ability to use accents properly. I haven't reached that point yet, but if I start to sound a little funny, that's why because I've been practicing so much.
With that, we are at our time. I hope that this has been provocative, challenging. Would definitely encourage people to come join us in the Strong Towns Commons, where we are having lively conversations about this. I definitely want to shout out Elena Pitt, who offered some great materials on this, as well as Rodney Rutherford, who had some great critical thoughts on the question that was posed in the initial article and sort of more broadly on this topic, we continue to face the longer-term questions of how do we build lasting prosperity that endures not just up cycles but also down cycles and helps our places to endure. so, Edward, we've already lost our friend Greg here. He had to step away for another call.
But Edward, thanks for doing up, so today.
Thanks, Norm. I always love coming on, chatting with you.
Yeah, we make it fun, and I hope engaging as well. Thanks, everyone. Take care, and take care of your places. This episode was produced by Strong Towns, a nonprofit movement for building financially resilient communities. If what you heard today matters to you, deepen your connection by becoming a Strong Towns member at strongtowns.org/membership.