50 N o r t h C a r o l i n a E c o n o m i c D e v e l o p m e n t G u i d e

Case sTudy: GooGle

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Google site manager Tom Jacobik, second

from left, participated in a ribbon cutting for

the 100,000-square-foot data center in 2008.

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State and local leaders search for ways to meet Google’s needs.

An engine for chAnge

every economic-development agency does them — familiariza-tion tours, fam tours for short. The agency wines and dines

site-selection specialists or business prospects and tries to show and tell them something about the state, county or region it represents. At worst, they’re free vacations for participants. At best, they create goodwill. In late April 2005, Pam

Lewis led a fam tour of the High Country — northwestern North Carolina — that delivered a lot more.

Lewis is senior vice president of entrepreneurial development of Advan-tageWest Economic Development Group, which recruits business to 23 counties in western North Carolina. She had just returned to the agency after nearly six years as tourism director for Burke County. She

Challenge:

Solution:

Google needed to build a data-storage center and required lots of cheap land, water and electricity. It also wanted incentives based mainly on its investment, not jobs.

Local officials met the company’s land and water needs and teamed with the state on a package of investment-based tax incentives. Duke Energy satisfied its electricity demands.

By Arthur O. Murray and Suzanne Northington

Stev

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um

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Case sTudy: GooGle

based her tour group at Chetola Resort in Blowing Rock. Among the events were a helicopter tour of industrial sites, a drive on the Blue Ridge Parkway, a trip to MerleFest — a bluegrass and Americana music festival in Wilkesboro — and horseback riding in Banner Elk, near Grandfather Mountain, one of the state’s top tourist attractions.

She recalls one of her guests having an especially good time. That was Rhett Weiss, CEO of DealTek, a Los Altos, Calif.-based site-selection company. A buttoned-down exec with wire-rim glasses and thinning hair, Weiss doesn’t stand out in a crowd. “We never dreamed he’d be a site-selection consultant for Google.”

He likely didn’t know it, either. This was months before the Mountain View, Calif.-based company hired him to find a site for an East Coast “server farm,” a massive data center filled with the net-worked computers that drive its Internet search engine. But it turns out that the fam tour nudged him and Google Inc. toward Lenoir, a city of about 18,500 in Caldwell County. The result: a $600 million data center on 220 acres in a region that needed a shot in the arm.

Weiss declined to be interviewed, but state and local officials who worked with him say he remembered that tour. In fact, the helicopter had flown over the site he ultimately selected. But Google didn’t settle on the location just because Weiss liked the horseback rides and music. The company’s requirements were great: It needed vast amounts of electricity to power its servers and water for the chillers that cool them. It needed a large tract of cheap land. And it wanted incentives based on the money it was investing rather than the jobs it was creating. It took a year, but economic developers and government leaders made sure it got everything it needed.

Like many companies searching for sites, Google is secretive about the process. When the project was pitched to represen-tatives of Caldwell and other counties eight months later, it was shrouded by code

names such as Vespers, Tapaha and Project H-3. North Carolina wasn’t the only state considered, nor was the western part of it the only region considered. Weiss, using his DealTek business card, told officials only that a high-tech company was considering the state. He outlined his client’s needs and the possible rewards — the investment and jobs — but went no further.

City and county officials quickly settled on a site outside of town — a former lumberyard owned by Bernhardt Furniture Co. They already had been negotiating to buy the 50-acre parcel. Water and electricity wouldn’t be a problem because the region had extra capacity from its days as a furniture- and textile-manufac-turing center. They also began putting together a package of tax breaks for the mystery company.

In February 2006,Weiss called them to Raleigh again. After securing signed confidentiality pledges, he polled the room to see whether anyone had divined his client. Lenoir Mayor David Barlow guessed Google — he’s not sure why. Weiss smiled and nodded, but he issued a warning: If it got out, the deal was dead. Weiss told them the secrecy wouldn’t end even when the selection was made. Google divulges little about itself and even less about its server farms. It won’t say how many it operates nor reveal their location, citing concerns about security and proprietary information. “They said there would never be a sign there identifying the center,” Barlow says. When Google opened a similar data center in The Dalles, Ore., that year, it refused to hold a ribbon cutting.

Knowing the identity didn’t make things any easier. Google had decided it needed much more property. Part of the solution was simple. Charlotte-based Duke Energy Corp. owned 60 acres adjacent to the site, which it sold to the county for $660,000. The electric utility helped assure Weiss that the region had the power capacity it needed. Server farms, on average, use as much electricity as a city of 25,000 house-

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Bound by the confidentiality agreement, they couldn’t tell owners why they wanted to buy the land — only that it was for a high-tech employer.

holds. Plus, the price was right. Electric-ity in North Carolina costs about 5 cents per kilowatt-hour for industrial customers, less than the national average of more than 6 cents, according to the Public Policy Institute of New York State Inc.

Duke doesn’t disclose customers’ usage, but Harry Poovey, a company economic developer, offered this: “You hear load ranges for modern data centers anywhere from 100 watts per square foot to 300 watts per square foot. So if it was 100 watts per square foot and you have 100,000 square feet of server space, that would mean 10 megawatts of power used.” What those numbers also mean is that the data center would be good business for Duke, winning another high-volume user.

Even adding the Duke tract didn’t satisfy Google’s land needs. It now wanted at least 200 acres. The city and county hired an outside real-estate company to handle negotiations for at least 35 parcels it needed to buy. That

didn’t work, Barlow says. “Two of the first three people they contacted threatened to call the police.” Reluctantly, Barlow, a real-estate broker, and Tim Sanders, who works with him and was then a county commissioner, went door-to-door to buy options on the property. It took months. Still bound by the confi-dentiality agreement, Barlow and Sanders couldn’t tell owners why they wanted the land — only that it was for a high-tech employer. One parcel was in the names

Du

ke

eNer

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Duke Energy could meet Google’s electricity

needs because of infrastructure from the region’s

heyday in textiles and furniture manufacturing.

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Case sTudy: GooGle

of 57 heirs, all of whom had to be con-tacted. It took until July 2006 to cobble together 220 acres.

But that didn’t mean they had a deal: There was still the matter of financial incentives. North Carolina had bolstered its incentives program in 2003. The Job

Development Investment Grant, as its name suggests, rewards companies for employment or significant investments, with jobs usually taking the forefront. Boston-based FMR LLC, which does business as Fidelity Investments, has received the largest JDIG — $54.6 million — for its promise to create 2,000 jobs and invest $100 million at its campus in Research Triangle Park. In the Google project, the 200 jobs were overshadowed by the $600 million investment. The state offered Google a $4.8 million JDIG, which the company rejected in part because of the ties to employment.

The JDIG, however, was dwarfed by other assistance from state and local

authorities. The General Assembly ultimately agreed to forego sales taxes on computer-equipment purchases and electricity for 30 years, which could save the company upward of $89 million. The law doesn’t specify Google but busi-nesses investing at least $250 million

to build data centers. Google said the exemptions were necessary to keep the state on a level playing field with competitors.

Meanwhile, Caldwell County and Lenoir agreed to forgive 100% of Google’s business-property taxes and 80% of its real-estate taxes for 30 years — about $165 million, by most estimates. Those deals emerged from negotiations spread through the balance of 2006. Herbert Greene, then chairman of the Caldwell County Board of Commissioners, says local governments quickly agreed to exempt the company from the business tax and made an initial offer of 75% on the real-estate taxes. They upped the ante when state officials hinted that might not be enough.

Other issues arose. While the town had capacity to meet the company’s water needs, it needed to renovate its water plant, built in the late 1950s. Barlow wanted assurance that Google, which would become its second-largest customer, would stay in town a while if Lenoir expanded capacity to accommodate other potential users. He and others were worried technol-ogy changes would make the center obsolete. Weiss wouldn’t provide any guarantees, but the company agreed to pay $1 million toward the $24 million project.

It wasn’t the only time Google pitched in. The company wanted to close what it

Caldwell County and Lenoir forgave 100% of Google’s business-property taxes and 80% of its real-estate taxes for 30 years.

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Officials say the high cost of the Google

project has been a good investment. It has

revitalized Lenoir, a city of about 18,500.

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Case sTudy: GooGle

thought was an unused 5.4-mile rail spur through the tract. It turned out that Sealed Air Corp. in nearby Hudson still used it. The local governments agreed to build a station in Lenoir where freight could be transferred from trains to trucks for delivery to Sealed Air. The city and county got grants to pay for most of the $1.3 million construction costs; Google came up with $3 million for the local govern-ments to operate the station. “They knew we didn’t have any upfront money. It was amazing how easy they were to deal with once they learned our plight,” Greene says.

In January 2007, word came down: Google had selected the site and would build two 100,000-square-foot buildings there. It uses one; the other stands ready when needed. It also has lifted the veil of secrecy a bit but still won’t reveal employ-ment. Executives held a ribbon cutting when the center opened in May 2008, and they’ve been a bigger part of the commu-nity than Barlow and Greene expected. “I told Rhett one day that it seemed to me

that we were a hell of a lot prouder of Google than Google is of us,” Greene says, “because we want everybody on Earth to know that Google is here.” Soon after, the company changed. “The opening of Lenoir was a good learning experience,” a spokesman said in a written statement. “We learned that the value of keeping our data center locations secret also needed to be balanced with the community’s interest in a major development in their region, and as a result, we have become much more transparent about our location, while still maintaining high security.”

Tom Jacobik, the site manager, is vice chairman of the county Economic Devel- opment Commission, where he helps

recruit other companies. Google is paying about $300,000 to install Wi-Fi service throughout Lenoir and has held apprecia-tion dinners for fire and rescue workers. It declined to take the tax break it negotiated for 2008, beginning the 30-year exemption the next year In the long run, the delay benefits Google. Completion of the second building in 2009 increased the property value, making the exemption worth more. Still, Greene and Barlow say both governments netted about $1 million that they didn’t expect. And even with the tax break, they got about $192,000 from Google in 2009-10, far more than they would have collected otherwise.

Dale Carroll, deputy state commerce secretary and former AdvantageWest CEO, says the company has had an even bigger impact on the region. “It changed the paradigm. We had been working for years to put in broadband networks in western North Carolina so that we could attract high-tech businesses. But we needed someone to come in and prove the model could work. When Google did, it opened

the door for other projects.” The state has built a smaller data center in Forest City, in Rutherford County, and Netriplex LLC built one at its Asheville headquarters in 2008. But the plum came in June 2009 when Cupertino, Calif.-based Apple Inc. announced plans to build a $1 billion data center in Maiden, just 30 miles from Lenoir.

Greene insists the real value of the Google deal can’t be measured with money in a county where nearly 60% of its manu- facturing jobs had disappeared in 10 years. “For us, it wasn’t an issue of dollars and cents. It was about changing our own attitude about what we were and what we could be. We saw it as an opportunity to become something different.”

“For us, it wasn’t an issue of dollars and cents. It was about changing our own attitude about what we were and what we could be.”