The town of Palo is usually quiet.
It’s a 15 to 20 minute drive northwest from Cedar Rapids past miles of farm fields. Palo is what you might expect for a town of about 1,600. Rows of homes in newly minted subdivisions radiate outward from the city center, where there’s a garden center, a restaurant and a Casey’s gas station.
Residents say the gas station is sometimes out of gas.
Most Iowans know Palo for the Duane Arnold Energy Center — a boiling water nuclear reactor just outside of town that shut down in 2020 after 45 years of operation. Its tall stack is Palo’s lone skyscraper.
It’s viewable from Karen Banninger’s driveway. The house she lives in with her aging parents sits near the top of a small hill. Between the road in front of her house and the nuclear plant off in the distance, there are acres and acres of solar panels.
“I used to look at a cornfield across the road. That was great,” Banninger said. “That’s why people move out to the country. They want the peace, they want the quiet, they want the scenery. We sure lost a big share of that.”
The solar field outside of Palo is Iowa’s largest. It went online in March 2024, despite years of ardent opposition from Palo-area residents, like Banninger.
“I think people just get pushed to the side, and [developers say] ‘We have all the money and we’re going to do what we want to do, and I don’t care if you don’t like it,’” she said. “That’s the attitude I felt the whole time with the solar when they had their meetings. But they didn’t care.”
Mentioning the fields of solar panels strikes a chord for many Palo residents — and not a good one. Because they were installed on county land, the city has had limited control over the development and the impacts on its residents.
“I’m very much against any more stuff in this area,” Banninger said. “I don’t know why they feel like we’re the hot spot all of a sudden.”
“I don’t know why they feel like we’re the hot spot all of a sudden.”Karen Banninger, Palo resident
Now, the city is involved in a similar power struggle with another major industrial project on the horizon. Palo and Linn County are at odds over a proposed Google data center. Public records show a busy timeline of negotiations between Google, the city and the county, and the two jurisdictions grappling with what a project of that size and scale could mean for each of their communities.
Google's planned data center was the subject of a busy town hall one evening in late March. People crowded into the local community center, filling rows and rows of folding chairs.
The night's agenda: a Q&A with Palo's mayor about Google’s plan for a new data center.
“I hope you respect that I’m not going to have all of the answers to all of the questions that people will have tonight, but I’ll do my best,” said Mayor Bryan Busch.
Nevertheless, people had come with questions in hand, and they wanted answers.
They asked what Google would gain by working with Palo, whether it is in the city's interest to build an industrial park and where the data center would source its water.
But there was another reason people were on edge: a recent, drastic pivot by Google.
For months, the tech giant had been negotiating to build the data center in unincorporated Linn County, exchanging proposals in search of an agreement. Then, suddenly, the company did an about-face and told Palo it wanted to build the data center in its city limits instead.
Google said it would do it through annexation; the site would be the same, and the land would be incorporated into the city.
At the town hall, resident Ann Brown said what seemed to be on everyone’s mind.
“There is absolutely no way that this big, successful company did that unless they thought, or knew, they would get a better deal with Palo than they did with the county,” Brown said. “There’s no reason.”
The mayor insisted Google had no ill intent.
“Any insinuation that somebody’s just going to sort of 'override' or 'bulldoze' Palo, or bully Palo, or anything like that, is discrediting,” Busch said. “Just being very honest with you.”
Linn County passes its first-ever data center ordinance
After Google first approached Linn County in mid-September with its proposal to build the approximately 545-acre hyperscale data center, the county's board of supervisors drafted a data center ordinance.
It passed in February with unanimous approval. The ordinance includes zoning rules for data centers of different sizes built in unincorporated parts of the county and establishes different regulations on building setbacks, noise limits and traffic impacts.
“I describe our regulations as kind of a baseline standard of protections,” said District 2 Supervisor Sami Scheetz.
For large projects, like the one Google proposed, the ordinance requires potential developers to complete a water study in the planning phase of the project to show there is enough water.
"Something that we heard over and over again from residents is that water is a critical resource, especially in this state, where we're seeing a water quality crisis," Scheetz said. "We want to make sure that we have the resources to supply water for these projects that are going to create potentially billions of dollars in profit for some of the largest companies in the world, like Google."
Developers are also required to sign special agreements with the county for water use and economic development.
The terms of the ordinance, county officials said, were developed in part through consultation with other local governments confronting data center development in their own jurisdictions around the country, including the so-called data center capital of the world in Virginia.
Since Linn County had no existing language in its code pertaining to data center construction and operation, officials worked to build an ordinance that could be both workable for potential developers and fair to its residents.
“We’d seen, not just here across eastern Iowa and Iowa itself, but across the country, what had happened in different places where governments were allowing these to come into place by right, just as if it was any other sort of heavy industrial usage,” Scheetz said. “And we said, that’s not what we should be doing. We should treat this differently.”
The county also held several public meetings where it gathered feedback from residents, including a heavily attended one in Palo, where residents raised concerns about water and electrical use.
“I am very confident that no ordinance for data centers in Iowa is asking for more information or more requirements to be met than our ordinance right now,” said Linn County Planning and Development Director Charlie Nichols when the ordinance was approved in mid-February.
County’s new water regulations ‘caused some concern’ for Google
Email records show Google provided feedback to the county while staff drafted the data center ordinance.
As early as late December, Nichols sought Google’s response to water-related language within the ordinance based on changes the company had already requested.
“Given the scale and longevity of the proposed use, our Board and technical staff want to ensure that ordinance and associated agreements provide a defensible and transparent approach to water planning and long-term monitoring,” Nichols wrote.
On Jan. 12, a Google representative wrote Nichols back with suggested changes to the ordinance. Google's side of the exchange was not included in records provided to IPR News, but Nichols responded, acknowledging Google's "concerns regarding water-use reporting and alignment with IDNR authority," referencing the Iowa Department of Natural Resources.
Nichols went on to say that the county would not be accepting Google's suggestions related to the ordinance's water provisions or the economic development agreement.
“We are comfortable with the structure and intent of those sections as currently drafted,” he said.
Public records show the proposed data center could draw 14 million gallons of water each day from the nearby Cedar River.
The next day, Google made what would be its final offer to the county, which did not appear to include any conditions regarding the ordinance.
“There are certain things that a company would absolutely not like to do but would not have prevented them from going through the county and through our ordinance,” Scheetz said.
He said water was a sticking point for Google throughout negotiations.
“I do think there are some things, and I know there are some things when it came to water, the water regulations in our ordinance, that caused some concern,” Scheetz said.
Public records show the proposed data center could draw 14 million gallons of water each day from the nearby Cedar River.
By building the data center in Palo rather than in the county, Google won’t be bound by the county’s new regulations. Palo does not currently have a data center ordinance.
Google offered the county millions in community betterment funding
Before the county ordinance was passed, negotiators for Linn County and Google spent months hammering out the terms of an economic development agreement related to “Project Meridian” — the title under which Google had been exploring developing the proposed property.
Public records obtained by IPR News show Google was willing to invest potentially millions each year into a special fund for the county’s “high-impact local priorities," including sustainability, education and public safety.
A term sheet provided by Google to the county on Jan. 15 shows the company offered yearly "community betterment” payments of $1 million for each of the buildings that would make up the data center — there were between two and six in discussion —with a 2% annual escalator. Other investments included creating 100 high-paying jobs and Google providing $5 million to $10 million upfront for a “Strategic Economic Partnerships Program.”
The company had also agreed to pay $500,000 for a water balance study to examine the area’s water supply.
“I wouldn’t be surprised if the economic package that Google offered Linn County was the most expensive they’ve ever offered a local government,” Scheetz said.
But the county felt that wasn’t enough. It countered Google's offer by asking for community betterment payments of either $70 million upfront per building or $3.25 million annually with a 4% yearly escalator and for the company to pay full property taxes.
That offer was made on Jan. 27.
Separately, emails from that day show former Palo mayor and current city Council Member Eric Van Kerckhove arranging a meeting with Google’s legal counsel.
“I believe all the players that need to be on the call from the Palo side of things...” he wrote. The screenshot appears to cutoff at the end of his sentence.
The next day, Google and its lawyers met with Palo city officials. Mayor Busch said this was the first time he had heard about Google’s annexation plans.
"You don’t want to get into a situation where you’re doing something behind anyone else’s back or anything like that,” Busch said. “So our first reaction was, ‘Appreciate you asking. We will have a conversation with Linn County and then we will get back to you.’”
Records show Palo officials met with county officials roughly one week later. Afterwards, Nichols with the county’s planning and development department sent Palo city council members a proposed discussion framework, where he suggested the project could be permitted in Linn County and then annexed into the city along an agreed-upon timeline.
No agreement appears to have been reached.
The county still wasn’t finished negotiating with Google. Weeks after it had hosted city officials to discuss the annexation, and over a month after Google presented its final terms to the county, Nichols emailed Google to accept its final offer.
But Google had moved on.
“At this stage, Project Meridian is focusing on the annexation process with the City of Palo,” said a Google project lead in response. “We believe this path best prioritizes our long-term investment and the region’s economic benefits.”
When Google left its deal with Linn County on the table, the county took that to mean the company had left behind the $500,000 water balance study, too.
A while later, on March 18, Nichols emailed Google yet again to suggest a framework for Project Meridian, one that incorporated aspects of the county’s prior annexation proposal to Palo.
“Given its scale and stated commitment to responsible community partnership, Google is uniquely positioned to help bring jurisdictions together in pursuit of solutions that serve shared residents and regional systems,” Nichols wrote in his email.
Google does not appear to be continuing negotiations with the county.
Palo city officials say no talk of annexation prior to late January
Busch has maintained that prior to late January, Palo city officials were not aware of any annexation plan Google planned to pursue.
“Prior to that, there was no conversation whatsoever about Palo trying to go out and secretly annex this property or go behind Linn County’s back or anything like that,” he said.
Email records show Palo had been included in negotiations about the data center related to the facility's construction in Linn County as early as October. That was around the time Google and NextEra Energy Resources — the utility working to restart the Duane Arnold Energy Center— announced a 25-year power purchase agreement where the nuclear plant would provide Google with over 90% of its energy output. Many aspects of the deal are still pending regulatory approval.
In December, the Palo city council approved reimbursement agreements with Google for the company to repay the city $50,000 for outside legal fees and $60,000 for engineering fees related to Project Meridian.
“Since the project was in unincorporated Linn County, the nearest town would provide municipal water, drinking water, those sorts of things. That’s what those emails were about,” Busch said, following what he called “inaccurate” reports that the city had been secretly in talks with Google to annex the property while the company was negotiating with the county.
Busch said city staff had negotiated an agreement with Google for the company to repay many of its costs associated with Project Meridian.
“When you see a financial agreement that Google was reimbursing costs, that’s your city council looking out to protect the finances of Palo,” Busch said.
On Jan. 12, Douglas Gross, a lawyer with the Des Moines-based law firm BrownWinick reportedly representing Google, emailed Palo Council Member Van Kerckhove and Ron Corbett with the Cedar Rapids Metro Economic Alliance with a subject line stating: “Re: Virtual email introduction.” This appears to be the earliest indication of Google meaningfully exploring annexation through Palo.
Van Kerckhove responded the same day, copying Mayor Busch. Notably, no Linn County officials appear to be included in the email exchange.
City officials met with Google on Jan. 28, the day after Linn County made its final counter offers to the company.
In early February, the city received a reimbursement for outside legal fees tied to a receipt for services provided on Jan. 30 labeled, “Google Annexation Project.” Busch said after Google shared its annexation plans, the city sought outside legal counsel, and the existing reimbursement agreement covered those fees as well.
Palo could receive millions each year in additional property tax revenue
If the data center were to be built in Palo, the city could stand to collect millions in additional tax revenue each year, depending on the terms of its arrangement with Google.
Public records show Palo could receive over $1 million per building, annually, in additional tax revenue if the property is annexed into the city. Officials in both Palo and Linn County confirmed the city would receive no additional property tax revenue if the data center were to be built in unincorporated Linn County.
By contrast, records show the county would receive roughly $872,000 per building, annually, if the data center were built in its jurisdiction, compared to $610,000 if the data center were built in city limits.
“If it’s in the city, it’s still in the county, whereas the opposite is not true,” Busch said. “If Palo does annex and this development happens in the city limits of Palo, there is a big financial upside, potentially for Palo, specifically. There is also a financial upside for Linn County.”
One document shows Google would pay over $3.2 million annually per building in taxes in Palo, up from the roughly $2.5 million it would have paid in the county.
In one email, then-mayor Van Kerckhove said Google would end up paying $12 million to $15 million annually in property taxes, though a percentage of that could be rebated through tax increment financing, depending on the terms of the potential economic development agreement.
Busch said the city is listening to its residents about how the additional property tax revenue could be used to benefit the city.
“We talk about things like a water treatment facility and our capacity there ... a potential wastewater facility,” Busch said. “I don’t have the answers to those right now, but those are certainly things that Palo — we hear it from all of our residents.”
Palo to draft data center ordinance, negotiate economic terms in near future
Linn County’s data center ordinance is publicly available. The county also shared Google’s prior developer proposals to the county with city officials “for transparency and context.”
“These materials are provided for reference only, to support informed decision-making and to ensure the Palo Council has the same information as the County,” Nichols, with Linn County Planning and Development, wrote after county and city officials met in early February to discuss Google’s annexation proposal.
Busch said Palo is currently busy drafting its own data center ordinance, building off feedback it received at the town hall in late March and the work Linn County did in drafting its ordinance.
“They went through a process that was eight or so months, and so I think it would be silly of us not to pay attention to that,” Busch said. “But we also know that Palo is unique from any other community.”
It’s not clear when the first draft of the ordinance or the city’s economic development agreement will be finalized. Busch said many aspects of the project are still subject to change, including how much water the data center can be expected to use.
“We’re going to listen to our residents and then kind of prioritize what’s most important for Palo, specifically, and work from there,” Busch said. “That might mean you’ll see a lot of overlap, and there might be some uniqueness there.”
Busch did not provide a timeline for annexation, if that were to happen, either.
“If it moves forward, it would be Google submitting an annexation application,” he said. “I don’t know when or if that will happen, but when it does, we will go through the regular channels, the normal process for that.”
The fight over the giant solar farm nearby is still in the minds of many Palo residents. Busch said, for him, the negotiations with Google are about how much local control and local benefit Palo can get from the project, whether it's built within city limits or not.
“I think that’s where we’ve heard a lot from Palo residents, if we can have those two things,” he said. “But then let’s also try to drive in the right direction, to make sure we are working with Linn County and the surrounding communities to do what’s in everybody’s best interest.”
Still, the project has created a rift between the two jurisdictions.
At a public meeting in early March, where the Linn County Board of Supervisors announced Google’s plan to the public for the very first time, Supervisor Scheetz didn’t mince his words.
“It’s just unfortunate that a huge company like Google is trying to pit jurisdictions against each other for their own favor,” Scheetz said.
Google did not respond to multiple requests for comment.
