In Facebook agreement, data leveled negotiating table

For the first time in its six-year relationship with Facebook Inc., the city of Altoona has walked away from the negotiating table with a few dollars in hand — an estimated $3 million a year from an agreement that will land a 1 million-square-foot, $400 million data center at the social media pioneer’s campus on the north side of the city.

But arriving to the point of the City Council meeting Monday when the agreement was approved was not easy, with at least one twist that caught city leaders by surprise and could lead them to pull out of the Greater Des Moines Partnership.

On the face, it calls for Facebook to make a payment in lieu of taxes for $3 per square foot of new construction. Facebook will receive a 100% property tax abatement for 20 years.

The deal was struck with the assistance of corporate finance experts NCP Inc., a Des Moines-based firm that was hired by the city to level the negotiating table a bit.

NCP came armed with an interesting piece of research. The major data center developers — Facebook, Apple, Microsoft, Google — paid an average of $5 per square foot in property taxes in communities where they were located, if they paid anything at all. West Des Moines, for example, is netting about $5 per square foot from Microsoft; Waukee is picking up about $4 per square foot for the initial phase of the Apple data farm planned for the city, NCP President Eric Lohmeier said.

Altoona, on the other hand, hasn’t collected a dime from Facebook as it struggled to meet a state requirement that it provide a local match for tax credits and other development incentives offered at the state level.

Under two phases of development — resulting in 1.6 million square feet of data center buildings that have been completed or remain under construction in Altoona — Facebook received a 20-year pass on all property taxes and it is collecting about $1.5 million a year in franchise fees that it would otherwise pay the city.

The present assessed value of Facebook land and buildings in Altoona is $450 million.

When Facebook approached the city about a year ago to negotiate an agreement for another round of expansion, city leaders finally declared that it would no longer forfeit all future revenues related to the development.

On May 7, 2018, it signed a contract that invited NCP to the table to help with negotiations.

Lohmeier, by the way, grew up in Altoona, though he confesses that he hadn’t paid much attention to Facebook until news blew up in 2013 that the city planned to give up 20 years of property tax revenues for the company’s inaugural project.

“Altoona and most cities don’t know what they are up against,” Lohmeier said. 

When Altoona balked at a repeat performance for the pending round of development, called Project Sequelant, Facebook walked away from the table.

Much to the dismay of Altoona officials, the company was assisted in its search for a different location and, presumably, another property tax sweetener, by the Greater Des Moines Partnership, Altoona City Administrator Jeff Mark confirmed today.

The Partnership’s role in the search “affected our ability to negotiate,” Mark said. As a result, the City Council could reconsider its membership in the area’s chief economic development advocate, he said.

The Partnership had this response to its role in the clash between Facebook and Altoona: “The Partnership does not discuss active economic development projects. The Partnership team works confidentially with companies to help them find the right location in the region for their project.”

In Greater Des Moines, Facebook considered a potential site in Van Meter. It also threatened that it could expand existing data center operations near Columbus, Ohio, and Omaha.

On April 5, Facebook, operating as Siculus Inc., paid $11.4 million for 210 acres on the north side of its Altoona campus. A portion of that property — 58 acres located south of 25th Street Northwest at Northeast 62nd Street — has been rezoned from an agriculture designation to limited industrial to accommodate the next phase of development.

So why did the company come back to the table, complete with a new negotiating team?

Mark said he doesn’t know for certain, but he believes Altoona Mayor Dean O’Connor deserves some, if not all, of the credit. O’Connor contacted Facebook to inquire about rumors that it was shopping for sites and incentives. While not acknowledging the rumors, Facebook resumed negotiations and a deal was struck, Mark said.

The Iowa Economic Development Authority board is expected to vote on state incentives for the project when it meets later this month.

Meanwhile, Lohmeier said his firm was more than pleased to assist the city.

“We didn’t help negotiate a perfect deal, but it’s a deal that is more beneficial and closer to market,” he said.

5:01 p.m. Ed. note: This story has updated the Greater Des Moines Partnership’s statement.