Michigan data center development trails other Great Lakes states

It might seem like they are cropping up everywhere, but Michigan is behind its neighboring Great Lakes states in developing data centers.

The development boom is much more dramatic in Illinois and Ohio, two states that account for half of all operational data facilities in the eight Great Lakes states and more than 60% of the data centers under development for the region, said João Ferreira, a regional economist for the University of Virginia's Weldon Cooper Center for Public Service.

Illinois and Ohio are the "largest and fastest-growing data center corridor in the region," Ferreira said. Illinois has 115 operational data centers. Ohio has 101. Michigan has 35, "a relatively small footprint" by comparison.

That could change since state lawmakers passed a sales and use tax exemption for data centers last year. Data centers are warehouses of computing equipment that host the equipment used to power the internet. As the burgeoning artificial intelligence industry expands, tech companies are racing to build huge data center facilities to support AI research and use.

Proposals to build data centers are now cropping up throughout Michigan. The most high-profile proposed data center, an estimated $7-plus billion project in Saline Township, is the topic of a Wednesday virtual public hearing.

The Michigan Public Service Commission is hosting the hearing to allow members of the public to weigh in on DTE Energy Co.'s proposal to serve the data center facility, which the utility company wants to fast-track instead of taking a slower, contested process that allows more parties to weigh in. More than 4,600 comments have already been submitted in the case.

At least eight active major data center projects are publicly known in the state. Save for the expansion of an existing data center in Gaines Township, the projects are not under construction yet. Most are still gathering the approvals they need from local governments and may not ultimately come to fruition.

"There are much more that are being proposed than will be built," Ferreira said. "They put the word out there, in terms of 'hey we want to create a data center,' and then they actually go and talk to two or three different counties. Depending upon their PR strategy, they might even try to put their name out there, that they want to invest in that county, but at the end of the day, there is a moment where they decide for one specific county, or one specific location."

While it seems like a lot of development at once, Phil Santer, COO of the economic development group Ann Arbor SPARK, said we shouldn't ask why data centers are racing to Michigan. Instead, he said we should ask why Michigan is behind.

"These aren't new; they just happen to be new to Michigan," he said. "But this is a pretty mature industry in most of the United States. Michigan is not a hot spot. We're not a hot spot yet, at all."

How Michigan, Great Lakes region rank

The Great Lakes region had about 525 operating data centers as of December 2024, Ferreira said, and about 220 more are planned for development through 2030.

Ferreira and his University of Virginia project team used S&P Global market data to count current data centers, data centers that will be developed through 2029 and the facilities' expected future energy needs. The S&P data is more detailed and accurate than other sources and avoids double-counting data center facilities that have multiple clients, he said.

The Great Lakes region is among the busiest for data center development in the United States, Ferreira said. About 20% of the country's data centers are in the Great Lakes states of Michigan, Wisconsin, Minnesota, Illinois, Indiana, Ohio, Pennsylvania and New York, he said. Another 20% are in Virginia, 18% are in Texas and the rest are distributed throughout the country.

Ferreira said data centers likely are attracted to the Great Lakes region because of its competitive electricity prices, relatively strong transmission networks, a cooler climate, and industrial land. Also, all of the Great Lakes states have tax incentives for data center development.

Other states offered those incentives before Michigan. In 2023, the Data Center Coalition, an industry group representing data center owners and operators, and the Chicagoland Chamber of Commerce said Illinois' data center incentives had attracted $8.5 billion in investment there in four years.

Michigan's data center tax incentive was enacted last year. That's what kick-started the recent flurry of proposals, Ferreira said: "Michigan was one of the few states in the Great Lakes that didn't have a tax exemption for this big, large infrastructure, for data centers. But that changed. They are locating everywhere. They saw Michigan as a very attractive place, also."

The tax incentives have made Michigan a fast-growing data center market, said Dan Diorio, vice president of state policy for the Data Center Coalition, an industry group. He contended local communities are seeking to attract data centers.

"This year, the state unlocked substantial investment with the passage of legislation establishing a new data center tax and economic development program, similar to programs offered in more than 35 other states," he said. "The data center industry is now investing billions of dollars in Michigan, and the state is quickly becoming a growing data center market."

Saline Township nets largest proposed data center

The largest proposed data center unveiled in Michigan to date is slated for farmland in Saline Township outside Ann Arbor, where a trio of tech companies — Oracle, OpenAI and Related Digital, a firm with ties to University of Michigan donor and billionaire Stephen Ross — plan to build a data center that would cost an estimated $7-plus billion. The facility would include three single-story buildings, each sized at 550,000 square feet, on a 250-acre property.

The facility is unpopular with some neighbors, who say the state government steamrolled community interests in favor of big corporations, as well as township officials who at first voted to block the development but reversed course because they don't have the funds to fight in court against the big tech companies.

Santer, of Ann Arbor SPARK, said the facility will boost local tax revenues and could lead to additional economic development in the Saline area. While it will transform some farmland into a complex of warehouses containing computing equipment, he argued it will have a smaller impact than an automotive plant that employs thousands of people.

"These things are intended to be tucked in the back and not bother anyone, is the point," he said. "Will it change the built landscape in that particular parcel? Sure, but it's not going to completely alter the landscape outside of that."

Data centers can provide communities with tax revenue, but unlike other industries, such as manufacturing, they are not major employers. Typical large-scale data centers employ about 1,500 people at the time of construction, then about 50 once they are operating, according to the McKinsey & Company consulting firm.

Diorio, from the Data Center Coalition, contended the industry supports communities.

"Data centers create high-wage jobs, provide substantial economic investment, and generate important local and state tax revenue that helps fund schools, transportation, public safety, and other community priorities," he said.

Large 'hyperscale' data centers hit the scene

Although new proposals for large data center complexes are roiling Michigan communities, data centers have been around as long as the internet.

Most of the data centers already operating are small, taking up space in corners of office buildings and serving the communities where they were located, said Ferreira, the University of Virginia economist.

Michigan's centers are almost all "retail" or "co-location" facilities, Ferreira said. Those tend to be smaller, about as big as a mid-size store in a mall, and offer computing power for local clients. The state also has a crypto data center designed for cryptocurrency mining and one telco facility for the communications industry.

Now the industry is shifting toward the huge, energy-hungry data centers that have enough computational power to train artificial intelligence tools, said Helena Volzer, senior source water policy manager for the Chicago nonprofit Alliance for the Great Lakes. Those, known as "hyperscale" data centers, are a different beast — they have a big footprint and use a lot of power. They are developed by and for big tech companies, including Meta, Google, Amazon, Oracle and Microsoft.

"Ohio and Illinois are kind of the leading states in the region in terms of the numbers of data centers they have attracted and sited and developed thus far," Volzer said. "The other states are a little further behind in terms of the number, but what we’re really seeing a shift now to is these massive hyperscale facilities, specifically to sustain the needs of generative AI."

The controversial projects in Saline and Howell townships would be hyperscale facilities. Howell Township trustees voted last month to place a temporary pause on data centers, but trustee Shane Fagan said he feels like they are inevitable. He said township officials' job is to help determine where they go.

Santer, from the Ann Arbor economic development group, supports data center development in southeast Michigan. He said it's time Michigan participates in "one of the biggest growth industries in the country."

"It's a huge market, and they have to be able to go somewhere," Santer said. In Michigan, "they've got the marriage between what can be done from an energy perspective and where they can find an available site to do it."

But Ferreira cautioned against fast-tracking data center development and becoming dependent on that revenue stream. Some communities, including Howell Township and Jerome Township, Ohio, have adopted temporary pauses on data centers while officials take time to consider further regulations.

"They are moving faster than our capacity to do the regulations and the policies that could minimize their impacts on society," he said. "This is something that really concerns me."

(Detroit News Staff Writer Sarah Atwood contributed.)