Google Slows N.C. Build, Foregoing State Grant

Google has told the state of North Carolina that it won't meet the job creation criteria for a $4.7 million state grant for its data center project in Lenoir, N.C. The grant required the company to create 200 jobs in four years, but Google has apparently slowed the pace of its project.

The Triangle Business Journal says Google (GOOG) has told construction workers that "that there won’t be any more work on the site for a while." The company has completed work on the first of two planned data centers in Lenoir, but thus far employs only about 50 workers at the site.

Google has withdrawn its application to get incentives under the state’s Job Development Investment Grant program, which gives companies tax breaks for creating jobs and making investments. The grant had been among the incentives announced when Google unveiled the project in January 2007. In a letter to the state, Google said it "fully expects to achieve employment and capital investment levels" it promised the state, but that it might take longer than initially planned.

Last month Google suspended construction on its planned data center in Pryor, Oklahoma. The company says it remains committed to the $600 million project, and that work will resume when  the company needs additional data center capacity.

The slowdown in data center construction raises questions about whether Microsoft, Google and other data center builders will be able to meet the investment and job creation requirements of state incentive packages that figured in their site location decisions. Google's North Carolina project included an array of incentives that could top $250 million over three decades, according to the Raleigh News & Observer.

With the slowdowns in Pryor and Lenoir, Google is clearly moderating the pace of its data center building boom. Google spent $452 million on its infrastructure in the third quarter of 2008, which was its lowest investment in capital expenditures since the company began its data center construction effort in early 2007. The third quarter total was well below the record $842 million Google spent on its data centers in the first quarter.

Microsoft (MSFT) has announced that it will cut data center spending, saying it plans to reduce capital expenditures for 2008 by $300 million for the remainder of its fiscal year. Rackspace (RAX) has also revised its spending timetable in San Antonio, where the company bought a former shopping mall and is converting it into its headquarters.

The job creation goals for Google's data center projects have prompted discussion in the data center industry, where even large facilities typically require fewer workers than the 200 jobs that Google projects for its projects. Google  plans two data center facilities on each of its new sites.

Since data centers are highly automated, a small number of workers can operate a large facility. A new data center can bring a large capital investment into a town, but create a much smaller number of jobs than a factory or office property of a similar size.

Some local officials like this scenario, since data center projects can attract a large ratable without adding significant traffic or large numbers of children to the local school system - two areas where large new businesses can create costs and headaches for municipalities. Others are less comfortable offering incentives to companies for buildings that will house electronics rather than people.