With winter push underway, Malaga water project becomes a test case in TIF debate

MALAGA — Construction is advancing toward winter-ready status at the Port’s new cooling-water disposal facility in Malaga, a major infrastructure investment tied to Microsoft’s data-center development and central to ongoing debate over a proposed tax-increment financing district (TIA/TIF) in Chelan County.

At the Nov. 12 meeting of the Chelan–Douglas Regional Port Authority, officials reported that pump house walls are now up, with contractors working to fully enclose the structure before freezing weather arrives. Once sealed, crews will be able to install electrical components and pumping equipment through the winter months.

The broader system — spray fields, lined ponds, buried pipelines, and the pumping station itself — is required to manage industrial cooling water for the data center. Port maintenance staff toured the site earlier this month with engineers from RH2 Engineering to review operational needs and storage requirements.

Microsoft has not yet supplied the water needed for system testing, but the Port and its engineering team are developing a temporary option to begin commissioning. The Port has started invoicing Microsoft for its share of project expenses.

Infrastructure that enabled the project

Port officials emphasized that the cooling-water facility is one of several foundational upgrades that made large-scale industrial development feasible on the Malaga bench. According to public statements from the Port, Microsoft’s decision to acquire property and begin construction followed — not preceded — the Port’s groundwork, including land assembly, feasibility analysis, water-system planning, and a $53 million overhaul of the Malaga Water District that ended up funded by Microsoft.

The water-district upgrades include two new reservoirs totaling 1.5 million gallons of storage. By the Port’s estimates, Microsoft is expected to use about 20% of that capacity, leaving the remaining storage to support future neighborhood growth and system reliability.

A real-time example in the TIF debate

Because the cooling-water project is progressing at the same time the Malaga TIF is under consideration, it has become a practical case study for the Port’s argument that major private investment depends on prior public infrastructure, rather than the reverse.

Critics of the TIF have argued that Microsoft was likely to expand regardless and that the district would redirect revenue growth the county would otherwise receive. The Port counters that without its early infrastructure work and coordinated planning, Microsoft would not have been able to secure and prepare the site.

A TIF does not raise existing taxes. Instead, it uses a portion of future property-tax growth—the increment created by new development—to fund infrastructure inside the TIF boundary:

• Existing property-tax collections remain unchanged.
  
  
• Only property-tax increments generated inside the TIF area are captured.
  
  
• Sales tax collections, which will also increase as a result of this development, are not included and would continue flowing to Chelan County and local jurisdictions.
  
  
• When the TIF expires, the full property-tax base, including the new increment, returns permanently to the taxing districts.

For example, if Microsoft completes all three planned data-center buildings, the Port estimates the associated construction activity alone could generate roughly $4 million per year in sales-tax revenue for Chelan County during peak buildout. This sales tax is not subject to any TIF and would go directly to local jurisdictions.

Why Malaga — and the dormant Alcoa site

The Port says the proposed TIF is aimed not only at supporting Microsoft’s buildout but also at redeveloping the dormant 2,800-acre former Alcoa site. At its peak, Alcoa employed roughly 1,000 workers and was one of the region’s largest taxpayers. The property paid about $600,000 in annual property taxes in 2016; by 2024, that figure had fallen to approximately $130,000, a drop of 78%.

Port projections under TIF law estimate that Chelan County would receive about 70% of new property-tax increment generated within the district, while the Port would receive about 30%. Once the TIF ends — typically after 20 to 25 years, but possibly sooner, according to the Port’s latest revisions and projections — the full expanded tax base returns to the county permanently.

Additional growth tied to data-center development, including an estimated $150.8 million in sales-tax revenue and $71.1 million in property tax from machinery and equipment, would fall outside the TIF entirely and accrue to taxing districts from the outset.

Inside the construction details

During the Nov. 12 meeting, Stacie de Mestre, the Port’s Director of Economic Development & Capital Projects, reviewed remaining steps before commissioning. These include:

• An additional equipment shed for mowing and spray-field maintenance
  
  
• Additional signage and operational controls
  
  
• Minor layout adjustments within the pumping station
  
  
• Coordination items that must be resolved before water can run through the system
  
  

All major earthwork is complete, and winter work will proceed inside the enclosed facility.

Long-term implications for Malaga

The cooling-water system will meet Microsoft’s operational needs while also expanding water storage and system capacity for surrounding neighborhoods. The infrastructure will remain in place as a public asset long after the data center is completed and long after the TIF, if approved, expires.

Bottom line

As construction continues into winter, the Malaga cooling-water facility stands as one of the clearest examples of the Port’s case for the proposed TIF: Public infrastructure built in advance to attract major employers, expand the long-term tax base, and return increased property-tax revenue to Chelan County once the district sunsets.

Andrew Simpson: 509-433-7626 or andrew@ward.media