Google reaped millions in tax breaks as it secretly expanded its real estate footprint across the U.S.
Last May, officials in Midlothian, Texas, a city near Dallas, approved more than $10 million in tax breaks for a huge, mysterious new development across from a shuttered Toys R Us warehouse.
That day was the first time officials had spoken publicly about an enigmatic developer’s plans to build a sprawling data center. The developer, which incorporated with the state four months earlier, went by the name Sharka. City officials declined at the time to say who was behind Sharka.
The mystery company was Google — a fact the city revealed two months later, after the project was formally approved. Larry Barnett, president of Midlothian Economic Development, one of the agencies that negotiated the data center deal, said he knew at the time the tech giant was the one seeking a decade of tax giveaways for the project, but he was prohibited from disclosing it because the company had demanded secrecy.
“I’m confident that had the community known this project was under the direction of Google, people would have spoken out, but we were never given the chance to speak,” said Travis Smith, managing editor of the Waxahachie Daily Light, the local paper. “We didn’t know that it was Google until after it passed.”
After the deal went through, Sharka changed its main address to that of Google’s headquarters in Mountain View, Calif. Site work began last fall.
Google — which has risen to become one of the world’s most valuable companies by transforming the public’s ability to access information — has vastly expanded its geographic footprint over the last decade, building more than 15 data centers on three continents and 70 offices worldwide. But that development spree has often been shrouded in secrecy, making it nearly impossible for some communities to know, let alone protest or debate, who is using their land, their resources and their tax dollars until after the fact, according to Washington Post interviews and newly released public records obtained through a Freedom of Information Act request.
With their growing reach into the U.S. economy and in the face of greater political scrutiny, tech giants including Google and Amazon are on a tear to expand — but communities now see their arrival more skeptically for the disruption, environmental impact and higher cost of living they often bring, as well as the incentives they seek, despite their deep pockets.
Local officials say they are pressed to maintain secrecy to lure powerful tech companies, which wish to avoid controversies and keep details about their operations under wraps. On Thursday that ability to play hardball was on full display after Amazon pulled the plug on plans to build a sprawling new campus in New York rather than endure further public criticism of the project.
Amazon’s yearlong search for a second headquarters was criticized for its use of confidentiality agreements that were so restrictive that officials couldn’t comment on their existence, and for playing cities against one another in a quest for government incentives. Some New York lawmakers were so outraged by the secrecy of Amazon’s process that they have introduced bills that would ban nondisclosure agreements for development projects in the city and state. (Amazon Chief Executive Jeff Bezos owns the Washington Post.)
Apple has also sought multimillion-dollar tax giveaways to build a 5,000-person campus in Austin, Texas, its largest facility by number of employees after its headquarters in Cupertino, Calif. Facebook is slated to receive $150 million in property tax incentives for building a 970,000-square-foot data center in Utah, the company and local officials announced last year.
Google Chief Executive Sundar Pichai announced $13 billion in new investments in data centers and offices across the U.S., a move that would grow the company’s physical footprint to 24 states and create 10,000 new construction jobs. He said that 2019 would be the second year in a row the company is growing faster outside its home in the Bay Area than in it.
Yet Google has made extensive use of nondisclosure agreements in negotiations for its planned second campus in San Jose, the largest after its headquarters in nearby Mountain View. It has plans to build a large new campus in New York as well as several other development projects, including in Virginia and Nevada, according to public announcements and company statements.
“We believe public dialogue is vital to the process of building new sites and offices, so we actively engage with community members and elected officials in the places we call home,” Google spokeswoman Katherine Williams said in a statement. “In a single year, our data centers created $1.3 billion in economic activity, $750 million in labor income, and 11,000 jobs throughout the United States. Of course, when we enter new communities we use common industry practices and work with municipalities to follow their required procedures.”
Amazon declined to comment. Facebook and Apple didn’t respond to requests for comment.
Confidentiality agreements are common in development negotiations. But the level of secrecy around data center deals is unusual, experts say.
“Public transparency laws are designed to keep the public interest at the contract table, and the way you do that is with information,” said Michelle Wilde Anderson, a Stanford Law School professor specializing in state and local government law. “If you scrutinize the winners and losers in this bargain, you see that Google is overwhelmingly the winner. Google has a strategic interest in getting their name out of these deals so that they go down more quietly, without public debate.”
The Google records were obtained by the advocacy group Partnership for Working Families, which has sued the city of San Jose over its negotiations with Google, arguing that the more than a dozen nondisclosure agreements officials signed were illegal under California law. Partnership for Working Families, which lobbies against issues such as income inequality, argues that secretive arrangements keep the public in the dark about the costs and benefits of corporate projects.
The records date back to 2006, when Google began its first wave of building data centers — warehouses of servers that house computing infrastructure. The company was racing to fight Microsoft and Yahoo in a war over search and new applications such as Gmail. The documents continue into 2018, offering a rare glimpse into the lengths Google has gone to keep these projects and their impact on the surrounding communities under wraps for over a decade.
Data centers, which can generate significant revenue for communities but use local resources such as energy and water, are sensitive sites for tech companies. If they are attacked, they could wipe out operations for the company. Everything from the technology they use to the location they are in are highly competitive.
The Partnership for Working Families sent Freedom of Information requests to local governments involved in brokering deals for Google’s eight existing data centers in the U.S., plus Midlothian, and sent seven additional requests to cities where Google has offices.
Officials in eight of the cities signed nondisclosure agreements, or NDAs, in their real estate dealings with Google, according to the documents. The documents also show that the search giant used shell companies to negotiate to build data centers in five of the six localities with data centers that responded to the records requests, including Midlothian; Berkeley County, S.C.; Council Bluffs, Iowa; Lenoir, N.C.; and Clarksville, Tenn. Google’s identity was eventually revealed, but often so late in the process that it precluded public debate.
Sometimes Google formed multiple subsidiaries, with distinct names, to handle different aspects of negotiations for the same site, according to the documents. When Google’s representatives first approached Midlothian in 2016, they used a code name that was not the same as either of the subsidiaries, Barnett said. (He declined to say what it was.) Google also asked Midlothian officials to sign a confidentiality agreement before they knew the developer’s identity, Barnett said. He said Google revealed its identity a year later, as the deal approached.
Barnett said that some confidentiality is always necessary when negotiating competitive development deals.
“When I’m trying to win a project, as all economic developers do, we abide by what the company wants. It would be detrimental to us to not follow the company’s lead,” he said. “I’ve been doing this for 20 years, and my job is to make sure that my city gets the best deal.”
Barnett said he did not believe that residents got the short end of the stick. Google’s $500-million development would support local businesses, schools and 40 jobs that Google has promised to create over five years.
The records also demonstrate how Google was able to keep publicly relevant information out of view. Lenoir, N.C., where Google announced in 2007 it would build a data center, agreed to treat as a trade secret information about energy and water use, the number of workers to be employed by the data center, and the amount of capital the company would invest, according to the documents.
The Google subsidiary, Tapaha Dynamics, then moved to exempt such trade secrets from transparency laws that allow citizens to make public information requests. At one point, according to the documents, Lenoir’s city attorney instructed City Council members not to answer questions about the project during a public hearing.
Williams, the Google spokeswoman, told the Washington Post that it considered information such as water and energy use to be trade secrets because competitors could use it to draw sensitive conclusions about the company’s technology.
Google’s secret negotiations appeared to lead to favorable land prices for the company. In 2008, Google purchased 850 acres of land for a dollar from Council Bluffs Industrial Foundation, a nonprofit that works with the city of Council Bluffs, according to deeds from the sale.
Smaller cities, in particular, face a sizable power imbalance when they go to negotiate with some of the wealthiest companies in the world, Wilde Anderson said. Some are so cash-strapped that they lack a single full-time lawyer, she said. Breaking the rules could mean getting into a costly lawsuit with an adversary with a seemingly endless budget.
“Google’s huge and well-resourced legal team pushes an NDA across the table, and it’s just a mismatch of resources,” she said. “Like many parts of life, you get what you pay for.”
In Midlothian, Google’s subsidiary had the authority to determine which documents would be disclosed, even if the state attorney general said they were subject to transparency law, according to the records.
A July article in the local newspaper, the Waxahachie Daily Light, announcing Google’s role in the new data center elicited hundreds of comments and shares, with many residents complaining about the low number of jobs and the tax incentives. “So Google comes in and pays no taxes for 10 years, and only brings in 40 jobs hmm sounds like a great idea,” wrote one local.
Smith, the managing editor of the local paper, said, “I’m not going to say we’ve been lied to, but we’ve been strung along.”
Your guide to our new economic reality.
Get our free business newsletter for insights and tips for getting by.
You may occasionally receive promotional content from the Los Angeles Times.