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June 05, 2023

Trone, Young meet with Quantum Loophole officials as company’s construction remains on hold

Credit: Frederick News Post

U.S. Rep. David Trone, D-District 6, and Frederick County Council President Brad Young, D, met with Quantum Loophole officials on Monday, roughly a week after the company voluntarily paused construction on its Adamstown campus following state environmental violations.

At their meeting in Carrolton Manor on Manor Woods Road, the legislators spoke with Quantum Loophole’s vice president of business and development, Rich Paul-Hus, and other officials.

Company officials shared updates on the construction of Quantum Loophole’s campus and the economic benefits that Paul-Hus said data centers provide to the state and county.

Surrounding Carrolton Manor is Quantum Loophole’s 2,100-plus-acre property, where the Texas-based company is developing infrastructure to support a campus of data centers.

That infrastructure includes Quantum Loophole’s extensive fiber network that will stretch from Frederick County to Northern Virginia and the company’s sewer, water, roads and power amenities.

Last week, Quantum Loophole voluntarily agreed to pause construction of a sewer line and pumping station after the company accumulated numerous environmental violations.

The largest violation was related to the unauthorized discharge of hundreds of thousands of gallons of water into Tuscarora Creek between late April and late May from a construction process called dewatering.

Shortly after the Maryland Department of the Environment inspected Quantum Loophole’s construction site on May 24, the department ordered the company to cease dewatering. The company went a step further by halting all construction.

Quantum Loophole addressed the violations in a statement issued on Friday and acknowledged a “failure to use the proper channels of communication to keep MDE advised of activity on site.”

“ … [W]e apologize to our community and partners for this oversight,” the statement said. “We are laser focused on regaining their trust — upon learning of MDE’s concerns, we immediately and voluntarily stopped our work and have since implemented additional layers of diligence, review, and oversight of our activities.”

Paul-Hus said at Monday’s meeting that Quantum Loophole was prepared to give lawmakers and others a tour of the campus, but did not due to the pause in construction activity.

Instead, Trone, Young, and representatives for Gov. Wes Moore, D, and U.S. Sen. Chris Van Hollen, D, listened to a presentation from Paul-Hus that underscored the competitive edge Maryland and Frederick County have for the future of data centers.

Paul-Hus highlighted the county’s property tax structure and the state’s data center tax incentive law that was passed in 2020. It provides exemptions from the state’s sales tax if data companies meet certain employment and investment thresholds.

He praised County Executive Jessica Fitzwater’s and Moore’s efforts to attract data centers to the area.

A few years down the line, Paul-Hus predicted, Frederick County will host one of the most connected data center communities in the world.

This shift comes as companies look to move beyond the data center hub of Northern Virginia, where tax structures are disincentivizing investment, according to a separate Quantum Loophole official.

However, one aspect of Maryland’s economic landscape that gives Quantum Loophole and data center companies pause, Paul-Hus said, is the state’s tax on digital advertising.

Passed in 2021, the tax would be levied on companies that receive revenue from digital ads shown in Maryland if the company makes more than $100 million on advertising globally.

After the legislature approved the tax, a court struck it down as unconstitutional. However, an appellate court overturned that ruling.

Paul-Hus said the tax sends a confusing message for the data industry, which views the state and county’s other tax structures more favorably.

He added that in the future, when data companies apply for county approval to build on Quantum Loophole’s campus, the permit-review process will require more proactive effort from the county.

In regards to Quantum Loophole’s state environmental violations, Paul-Hus said the company has a premier environmental consultant to dissect those issues.

He touted the company’s commitment to sustainability and the individual conservation efforts of some Quantum Loophole leadership members, such as Chief Technology Officer Scott Noteboom, who Paul-Hus said is working on preserving a portion of land in Hawaii.

Paul-Hus said the company and its campus are neighbors with county residents, and Quantum Loophole works to have discussions with community members about major developments and construction.

When approached by a News-Post reporter after the meeting, Paul-Hus declined to be interviewed, offering to have one at a later, undetermined time.

During the presentation, Trone addressed the violations as “bumps in the road,” and said that as long as they’re fixed and Quantum Loophole does what’s right, the company can contribute to the county’s education budget through tax revenue.

He said it’s important that Quantum Loophole maintain a strong commitment to the environment.

Trone, who is running for U.S. Senate, reiterated those points in an interview after the meeting.

Asked if the economic incentives that Quantum Loophole officials value should be contingent on environmental compliance, which the company has lacked recently, Trone said Quantum Loophole’s commitment to the environment and transparency have been impressive, and in business, there will always be setbacks, referencing his own business career.

“ … [Y]ou can’t let those outliers and those bumps in the road dissuade you on what’s the most important goal, and that’s our children and their children in education,” Trone said. “It’s about taxing companies, not taxing people, but over everything, paramount is getting the environmental piece right.”

Trone said he was impressed that Quantum Loophole admitted making a mistake and that the company intends to fix it. Trone said there could be significant money for education and environmental protection through tax revenue from data centers.

MDE issued Quantum Loophole a noncompliance warning in January, after the company didn’t inform the department that it started construction on its sewer line and pumping station, violating its permit.

Those violations continued with other instances of improper permitting and escalated when MDE found that Quantum Loophole was operating construction equipment on a floodplain and discharging subsurface water into Tuscarora Creek.

Neighbors grew concerned when they noticed the creek turn murky and said they were in the dark when vaguely worded signs were put up at creek crossings warning them to avoid contact with the water.

Aside from putting up the name and number of the company’s chief technology officer on those signs, Quantum Loophole did not widely address the violations until the News-Post sent questions about them.

Young, too, focused on additional revenue that companies like Quantum Loophole can provide without straining infrastructure, like roads and schools.

Asked about Quantum Loophole’s environmental violations, Young said he does not have all of the specifics, but expects that the County Council will get some kind of report.

“What I’ve seen is that Quantum is trying to be as transparent and open and accessible as possible and wants to do the right things,” Young said. “They want to be good community partners. Obviously, we’ll have to see how this transpires — what happened and why it happened and whether it can be prevented from happening again.”

Young said he’s looking for the violations to be addressed in the proper way, and that the proof of Quantum Loophole’s compliance will be in its results.

When it comes to leveraging financial benefits from data centers, Young said, the county cannot rely on property taxes alone, and there may have to be additional taxation on personal property.

“That’s where Loudoun [County] and the others are getting their biggest piece of the cake,” Young said. It “is not from the property taxes, but from the personal property taxes and other taxes that they’re levying on these data centers that we necessarily don’t have in place right now.”