Amazon has a big footprint in Morrow County driven by tax incentives, cheap power and available land. A new complaint from the Oregon Department of Justice claims that some of those tax incentives and land sales were approved by people who benefitted from the company’s purchase of internet services from a small company called WindWave. Mike Rogoway, business and technology reporter for The Oregonian, reported the details of this story and joins us to explain.
Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.
Geoff Norcross: This is Think Out Loud on OPB. I’m Geoff Norcross, in for Dave Miller. Morrow County, Oregon doesn’t have a lot of people, but it has a huge technology footprint. By building a cluster of data centers, Amazon turned this county of about 12,000 people into one of the most valuable technology corridors in the Northwest. Amazon is there for many reasons, but a major one is the land and tax breaks local officials gave the company to entice them. Now some of those officials are accused by the state of personally profiting off the presence of Amazon by participating in the sale of another company. Mike Rogoway reported on all of this for The Oregonian OregonLive. He’s a longtime business reporter there and he joins us now. Mike, welcome back to Think Out Loud.
Mike Rogoway: Thanks for having me, Geoff.
Norcross: The company at the center of this is called Windwave Communications. Set the scene for us. What does this company do?
Rogoway: Well, so they provide fiber optics. So they’re digging the trenches in the ground and providing and building the fiber optic cables, stringing the fiber optic cables to Amazon’s huge data centers right there, and the internet flows essentially in and out of the data centers along those fiber optic lines. So they’re essentially a construction company,
Norcross: OK. And this is an important question that we’ll get into a little bit later. How are they connected to Amazon?
Rogoway: Well, this is where things get complicated. So Windwave is owned by what are now former public officials in Morrow County. They bought the company back when they were in office in 2016, and at that time, Amazon was sort of just getting started in Morrow County. And Windwave, this fiber optic company, was owned by a nonprofit called Inland Communications, which provided internet service to hospitals, schools, things like that. So all five of Windwave’s buyers served on Inland’s board. Are you following me here?
Norcross: I think so.
Rogoway: OK, so then the people on the board decided they wanted to buy Windwave themselves. The catch here is that they are also, four of them, public officials: a port director, two port commissioners, and a county commissioner. These are the people who are charged with attracting Amazon to the market. They made the decision to do that by selling port land to Amazon, land at the port, and by offering tax breaks to Amazon.
So the questions are two. Number one, did they operate in the community’s interests or in their own interests when they were awarding the tax breaks to Amazon because they owned Windwave and they stood to benefit from that? And the other element is, did they give the nonprofit that they acquired Windwave from a fair price? And that’s where the state charges come from. They paid $2.6 million. The state says that was far, far less than Windwave.
Norcross: Can you be specific? What was the actual value of this company?
Rogoway: Well, the state puts it at least, I think it’s $9.5 million, so at least triple what they paid. Now we’ll see, we’re getting a better idea now. What’s new is Amazon has never been willing to say what they paid to Windwave, that was owned by these public officials, how much money they had thrown their way. We have now, through public records, we’ve gotten that information from Amazon. Between 2019 and 2022, they paid more than $100 million to this small company owned by these public officials in Morrow County for these fiber optic services.
Norcross: So when a valuable company gets sold for much less than it’s actually worth, you would think there would be a winner and a loser. Is that not the case here?
Rogoway: Well, that’s the state’s case. The state’s case is that the winners were the people who bought it for less than the state says it was worth at this $2.6 million price. The loser, they would argue, is the nonprofit Inland Communication, on whose board all the buyers had previously sought. And they say, well, wait a minute, this is money that should have been going, gone back to the nonprofit. You know, this missing $7 million, or at least $7 million, should have flowed back to the nonprofit to provide community services.
Norcross: And what do these new owners stand to gain by actually owning this company now?
Rogoway: Well, so they were doing $1 million, $2 million worth of business at the time they bought it. Now we know they’re doing like $40 million a year by 2022 with Amazon. So what they stand to gain is a great deal of money.
Norcross: Can you be more specific about the new owners? Who are they?
Rogoway: Well, as I say, it’s former county commissioner Don Russell, two former port commissioners, Jerry Healey and Mark Padberg, and the port’s former director Gary Neal.
Norcross: OK, have you talked to any of them?
Rogoway: I talked to them when we first reported this story in 2022, and they said, to a degree, they said very little, but they said essentially that this was a deal that just came their way, and they weren’t willing to say more than that. What their attorneys say now is that they were essentially just doing good business. They were just successful. That’s what everyone wanted was for Windwave to be successful. Now it is successful and they don’t feel it’s appropriate for the state to be coming after them for running a successful business.
Norcross: The state says, according to the complaint, the buyers were “Established community leaders who abused their authority and breached the public trust for their personal financial gain.” What else does the state say about their position and how they leveraged it?
Rogoway: Well, as I say, all of these people were at one time on Inland’s board, and they say that they essentially sold the business to themselves. They never put it out on the open market. They went to the state, which oversees the operation of nonprofits in Oregon, and they say, we intend to make this purchase. Do you object? Well, the state didn’t object at the time. The sale took place in 2018.
But the state argues now that the information that the buyers provided was grossly inadequate, that they said at the time that they were looking at revenues growing at 2% a year or something like that, that Windwave was in a small corner of the state, serving a niche market, fiber optics, and it wasn’t likely to grow very much.
Well, when Amazon built all these data centers, it grew quite a bit, more like 1,500%, not 2%. So the state’s argument is they had essentially knowledge, from the fact that they were public officials, that Amazon planned to grow, and that they took advantage of that knowledge to make this purchase.
Norcross: It sounds, and I know that this is a legal term here and I’m using it purposely, conspiratorial.
Rogoway: The state uses, I think the term they call it, an insider cadre. They, I don’t think they use the term conspiracy, but yeah, they do allege that the buyers were working together to make this purchase.
Norcross: This is a civil case that’s being brought by the state. Why not a criminal one?
Rogoway: The state says that the statute of limitations for criminal charges has expired. I’m not a lawyer. I can’t say what kind of charges they might have been looking at.
Norcross: What might be the possible outcomes of this case?
Rogoway: Well, we’re still sort of at an early stage. The defendants sought to have the case dismissed. A judge ruled this month that they can go forward, so it’ll move along that path. Now, there’s a side path to this. Amazon isn’t facing any charges at this point. However, the state has, in December, the state subpoenaed Amazon and asked in so many words, “What did Amazon know about Windwave’s ownership and when did it know it?” There’s no allegation that Amazon was involved in the sale of Windwave from the nonprofit Inland, but I think the state is trying to understand, when Amazon was negotiating for tax breaks – and remember, these incentives are worth hundreds of millions of dollars, $435 million to date – did Amazon know that the people it was negotiating with for these tax incentives were the same people who owned Amazon’s local fiber provider, Windwave?
Norcross: I see. Can you give me a sense how heavily Morrow County relies on tech, generally and Amazon specifically?
Rogoway: Well, it’s been transformational there. If you’ve driven out 84 lately and you go out past The Dalles and, as I say, it’s about 160 miles east of Portland, you could see it quite clearly from the road. It’s an enormous footprint there. These are mammoth facilities the size of shopping malls. There’s one essentially right downtown, in downtown Boardman, and there’s another constellation out in Umatilla County near Hermiston. They have just an enormous footprint.
They’ve been a big economic infusion to the region, but there’s great concern and consternation in the community about whether, number one, the community’s interests were being looked out for when public officials were negotiating the terms of Amazon’s arrival. And number two, whether the benefits from Amazon’s arrival are being distributed equally. As you said, Morrow County doesn’t have a lot of people, census puts it at about 12,000 people, I think, but it’s a huge county geographically. And so you have far flung places like Hepner where residents aren’t seeing as many benefits as they are in the Boardman area.
Norcross: Yeah, and that brings up another point that I was thinking about when I was reading your reporting is that many rural counties in Oregon or Eastern Washington, for that matter, might be watching these developments because they also have lots of land…
Rogoway: Yes.
Norcross:…and access to a lot of power and may be interested in getting into the data center business. And I’m wondering what lessons this story might have for other county governments when they’re thinking of getting into this business?
Rogoway: Well, it’s interesting you raised that point. I was talking with somebody in the tech industry just this morning about this, and they said that our land use system, our system for determining how community proceeds and how its resources are used, there’s essentially a set of steps you follow, and one of them is community engagement. And what this person was suggesting was perhaps there’s a higher level of community engagement required when you’re doing something on this scale, when you’re in a community of 12,000 people and you’re dealing with a trillion company and billions of dollars in investment. Perhaps another step needs to be taken to make sure everyone is not only, you’re not ever going to get everybody on board, but that everyone understands the terms of the transactions and what things are going to look like.
Norcross: Might there be a role for the state in all this, in codifying this into law, when it comes to disclosure and ethics?
Rogoway: Well, the state has its new data center advisory group, and it’s looking at a number of things. It’s looking at water use, energy use, land use. Initially they said they would not look at tax incentives, but they reversed themselves, and they say they will look at that now. This is hundreds of millions of dollars that’s going every year to the industry in Oregon right now. Right now, they don’t plan to look at questions of ethics or governance, that’s not on their agenda. One could imagine it might come up. They’re meeting through October, I think they did, they plan to have their final report done.
Norcross: The context, the bigger context for all of this is just the rush for getting data centers online because of AI and the hunger for more data, more computing. How does that drive this, you think, how does it drive this story in rural Oregon?
Rogoway: Well, it’s changing everything. I mean, data centers were growing at sort of an arithmetic pace in Oregon, steeply but steadily, for many years. Now the demand is off the charts. We’ll have more on this in the paper tomorrow, but there is a lot of additional land on the drawing board for data centers in Oregon right now. Right now, data centers use 11% of the state’s electricity. Industry analysts say that that share will double in the next few years, so it’d be a quarter of the state’s energy, and these are decisions being made in small communities that have statewide implications. The industry has been here for 20 years, since Google built its first data center in The Dalles. It’s pretty well entrenched, and the state is only now beginning to sort of reckon with the implications of this really, really large business.
Norcross: Mike Rogoway, thank you so much for this. I appreciate it.
Rogoway: Thanks for having me.
Norcross: Mike Rogoway is a business and technology reporter for The Oregonian and Oregon Live, and you can find links to his reporting on this story at OPB.org/thinkoutloud.
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