Phoenix Data Center Summit Preview: Russell Smolden says Phoenix Working Hard for Tier I Data Centers

Nov 1, 2017
by Josh Anderson

PHOENIX, AZ — B3 Strategies Chief Executive Officer, Russell D. Smoldon, has over 30 years of public policy experience focused on energy, water, taxation, environmental, health care and economic development issues. A former legislative assistant to Congressman Thomas S. Foley, Mr. Smoldon has been involved with nearly every public policy issue affecting Arizona over the past 25 years in his role as Manager of Government Relations with Salt River Project (SRP) in Phoenix, Arizona. Prior to joining SRP, he served as the government relations representative for Idaho and Montana with Spokane, Washington-based Avista Corporation. As a respected leader in the Phoenix business community, Mr. Smoldon serves on the board of the Arizona Tax Research Association (ATRA), the Western Business Roundtable, the Greater Phoenix Urban League, the American Legislative Exchange Council and the National Conference of State Legislators’ Advisory Council on Energy and National Tax Partnership. Smoldon will be a featured panelist at our Southwest Data Center Summit tomorrow in Phoenix. As part of a special sneak preview, CapRE connected with Smoldon to learn more his perspective and plans for the summit.

CapRE: Thanks for chatting with us today. Please tell our readers a bit about what you do and what’s on your mind/plate at the moment.

Smoldon: Well, in 2013, we were able to pass legislation in Arizona that allows for us to catapult ourselves into the Tier 1 rankings of data centers. So we created legislation and we got it passed and signed by the governor that would allow us to enjoy exemptions in order to attract customers to the data center industry here. At the time, we were competing primarily with Nevada and Texas, who don’t have income tax, and Oregon, which doesn’t have sales tax. We were trying to figure out how to offset the less expensive power rate for hydro in the Northwest and the cost of operations in Arizona.

CapRE: Indeed. Sounds like it worked out.

Russell Smoldon, B3 Strategies

Smoldon: Well we came up with this program to certify data centers as sustainable, and that allows a 10 year exemption from sales tax. So when you’re buying servers, equipment, cabling, enabling software, all of the stuff that makes up the data center. Our income is also relatively low in Arizona. so getting rid of the sales tax for a specific period of time was a good deal. We modified it in 2015 to have a new category that allows for people who spent $250 million, mostly to attract large enterprise data centers. That then turns into a 20 year exemption on some taxes. A lot of people think that 20 year exception is a great deal, so we have added $3 billion in investment since 2013 in large data center activity.

CapRE: Wow, congratulations!

Smoldon: I run the Arizona data center coalition, which is basically a loose collation of data center managers and other interested groups in the data center business here in Arizona. And my company has represented Digital Realty, H5, Stream, and assisted several other large entities with various things over the last few years. We primarily exist to push the agenda and protect the incentive programs that have been created at the Arizona commerce authority.

CapRE: Oh, so they’re in need of protection?

Smoldon: Right now, our biggest challenge is that we have a legislative Ad Hoc committee convening to talk about digital goods and services, and though they currently do not have the ability to tax the transaction of cloud storage  — from a sales tax perspective – they are trying to anyway. Because there is a hell of a lot of revenue associated with the Cloud. All of those systems like Dropbox that we utilize, phone and cell service companies, CenturyLink, T-Mobile, etc. The ability to tax those data plans is something the state is looking at. The department has also recently attempted to tax on a personal property basis the stuff stored in the data center. So we’re in the process of trying to get that figured out with the legislature. The scary part is that all of the good work has been done to create this wonderful Tier I market for data centers, but it could be in jeopardy depending on how this all turns out.

CapRE: So what conversations are you looking forward to having tomorrow at our Southwest Data Center Summit?

Smoldon: Well I am serving on a panel that is talking about how to use Phoenix as a jumping off point for Mexico and Latin America. Currently Phoenix is the “carrier hotel” for all the data that goes through Dallas and LA. But we have the ability to expand outwards from Phoenix into Mexico and then into Latin America, and that market is kind of untapped. The potential is very significant though. At the same time, the electric companies are talking about doing cross-border infrastructure and electrical work. We’re talking about that tomorrow – the physical and technical challenges, and what markets are best for international as well as domestic companies to jump off for Mexico and Latin America from Phoenix.

CapRE: Sounds like there’s a lot of exciting stuff going on in this city.

Smoldon: Phoenix is a great market. It’s not Southern California, but you can easily get to Southern California from here. It’s a lot cheaper to do businesses here on every level. The regulatory scheme is a lot easier and the government is attempting to be friendlier to business. To start, relocate, or expand a business here come with a lot of pluses, least of which is the fact that Phoenix is a hub for airline services and a couple of carriers can get you to anywhere within an hour, like San Francisco, Denver, Salt Lake City, and Los Angeles. It’ a great market for, again, expansion, relocation, or to start up a firm.

CapRE: Indeed it is. Thanks so much for your time today, we’ll see you tomorrow!

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