AI data centers near tax break with $165B of phantom debt

Doña Ana County in New Mexico is the furthest thing from a tech hub. 

Located near the U.S. Southern border in the Chihuahuan Desert, the region is known for its chili pepper farms and New Mexico State University. Now, county officials are trying to capitalize on the artificial intelligence boom by considering a $165 billion debt package and a sweeping set of tax incentives to become home to a data center campus. 

Doña Ana County commissioners voted four to one last week to advance a resolution that would provide tax breaks to the backer of a massive development dubbed Project Jupiter. The plan calls for four AI-oriented data centers as well as power generation, battery storage and micro-grid facilities near Santa Teresa, New Mexico. 

The proposal isn't a real obligation of the county. Instead, it's a way for local governments in New Mexico to give tax subsidies to corporations. The bonds also wouldn't be sold to debt investors, instead they would be purchased by an affiliate or parent of the company, according to a county resolution. The projects will be self-funded, it noted. 

BorderPlex Digital Assets, an Austin-based firm, is facilitating the development in partnership with STACK Infrastructure, a data-center operator owned by Blue Owl Capital, which is constructing the facilities. After the data centers are built, STACK typically leases out the capacity to technology companies. 

Through the transaction, Doña Ana County will acquire the data-center campus, leasing it back to the company for the term of the bonds. The corporation will then acquire the project when the debt matures, which is a maximum of 30 years. 

Because the county will own the land, it is exempt from property taxes, Christopher Muirhead, a lawyer on the deal, said during an Aug. 26 commission meeting. 

The deal — known as an industrial revenue bond — also allows the purchase of data-center equipment to be free from state sales levies. The $165 billion represents the total amount of investment in the project and was calculated by the company in their bond application, Muirhead said in an interview. 

"This is critical, it is not a debt of Doña Ana County," Muirhead said. "This large number — $165 billion — is not a debt of the county, it is not money the county is providing the company, it is not an obligation the county will ever be asked to repay." 

Public hearings on the transaction are set for later this month, when commissioners will take final votes on the ordinances. If approved, construction is expected to begin this year.

In return for the break, the company will pay $300 million to the county in payments-in-lieu-of-taxes — known as PILOTs — over time. It's estimated the project will create roughly 2,500 construction jobs and 750 permanent positions, according to BorderPlex's presentation to the county. 

BorderPlex projects $5 billion in construction spending over the next decade, New Mexico Governor Michelle Lujan Grisham said in a February release. 

The project will be privately financed with no risk to taxpayers, according to an Aug. 28 statement from STACK. A spokesperson for BorderPlex declined to comment, referring further comments to the STACK release. A spokesperson for STACK declined to comment. 

A popular economic development tool, more than 100 series of such industrial revenue bonds have been issued in New Mexico since the 1980s to support companies including Meta Platforms, Inc., Intel Corp. and Walmart Inc., according to a 2018 report from a law firm based in Albuquerque. 

The surge in demand for AI has touched off an expansion of data centers that house the semiconductors necessary to build, grow and run the systems. ChatGPT creator OpenAI alone is expecting to drop trillions of dollars on infrastructure in the coming years. Such a quick-growing industry caused a frenzy among states and local governments for the developments, shelling out tax incentives to lure new projects. 

It also provoked a backlash over corporate subsidies and the enormous resources required to power and cool the sprawling facilities. Data centers typically employ fewer people than a factory, making the economic trade-off less rosy compared to the construction of a manufacturing plant. 

In Doña Ana, residents pressed commissioners on how the project might strain already-limited water supplies and cut into revenues for schools and infrastructure. Project Jupiter's data centers will be designed with a cooling system designed to minimize water use, STACK said.  

Supporters of the deal contend that Project Jupiter will position the county as a leader in advanced computing. 

"By securing digital infrastructure today, New Mexico is investing in its economy to build a more prosperous tomorrow," Governor Lujan Grisham said in February.