Four Ways States Are Taking on the Data Center Machine
The policy backlash to data centers has (maybe) arrived.
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"It's actually been a unifying issue that we haven't really seen before in a long time, because regardless of whether you're a Republican or a Democrat, you just don't want it," said an organizer in rural Virginia.
That unifying issue is opposition to data centers — which there are more of in the U.S. than anywhere else in the world by a factor of 10 — and specifically the relentless expansion of them that Big Tech is foisting upon the nation in the name of supercharging AI operations.
As I noted a few weeks ago, a record number of data center projects were delayed or blocked in the second quarter of last year. Indeed, it seems very clear that the politics of data centers are shifting, and that going to bat for them is potentially becoming a political liability in states as diverse as Wisconsin, Florida, Virginia, Arizona, and Michigan.
Instead of promoting more data center development, legislators are looking for ways to assuage their constituents’ concerns, protect public resources from data center extraction, and stop some of the nefarious tactics data center operators and developers use to sneak projects past public opposition. Below, I'll round up some of the specific bills now rolling in state legislatures, and explain whether and how they would be impactful as more folks look to stand up to the data center machine.
Repealing Tax Subsidies: One of the headline ways in which data centers extract from local communities is the tax breaks they receive, which are justified by the promise of data-center inspired economic development that never actually arrives. The public in more than 30 states is collectively spending billions of dollars annually to subsidize data centers. Legislators in four states — Arizona, Georgia, Maryland, and Michigan — have proposed scrapping their state’s tax breaks, with Arizona Gov. Katie Hobbs saying, “It’s time we make the booming data center industry work for the people of our state, rather than the other way around.” I’ve also heard that some lawmakers are considering placing an excise tax on data centers. Last year, the Ohio legislature approved a repeal of their state’s data center tax break that Gov. Mike DeWine vetoed — but an override is still possible.
Banning Nondisclosure Agreements: Residents across many communities have been rightfully outraged to discover their elected officials or public employees have signed nondisclosure agreements with data center developers and operators, preventing them from divulging key details — including the end user of the data center in many cases — to the public. These agreements are used to cloak data center development in secrecy, to give the developer an advantage in pushing it through the process. As one protestor put it, “NDAs BETRAY.” Lawmakers in five states — Georgia, Wisconsin, New Jersey, Florida, and Michigan — have proposed broad bans on the use of NDAs in data center development, while an Arizona bill would prevent the use of NDAs to cover up information regarding the data center’s impact on electricity and water resources.
Creating a New Utility Rate Class: One of the chief concerns regarding data centers is their effect on electricity prices, with some jurisdictions predicting large rate increases to facilitate the buildout necessary to keep planned data centers humming. In response, legislators or utility regulators in several states — such as Ohio, Minnesota, Delaware, Oregon, and Virginia — have created new classes of utility charges specifically for data centers, and required that they cover the costs of the infrastructure investments necessary to keep them online. Legislators in many other states, including Oklahoma, South Carolina, Pennsylvania, Wisconsin, New Jersey, and South Dakota have proposed doing the same.
Imposing a Moratorium: Following the lead of cities and counties in at least 14 states that have slammed the brakes on data center development entirely, state legislators from Georgia, Oklahoma, Virginia, and Vermont have proposed moratoriums on new data center construction for a set period of time, buying regulators and legislators breathing room to assess the potential impacts of data center development, create any new regulatory structures, and generally rein in Big Tech’s effort to slam through as much construction as possible in as little time. This is the logical result of the tech industry’s haste and secrecy: A backlash that threatens to stop everything tech CEOs want to do, because they wouldn’t make concessions on the front end.
Of course, just because some elected officials are feeling the political winds shift doesn’t mean the cult of data centers has beaten a full-on retreat. So there’s alternative direction in which some politicians are rowing.
Making Everything Worse: Legislators in West Virginia, Colorado, and South Dakota have proposed new, in some cases decades-long, tax breaks for data center development, while a proposed bill in Florida would proactively allow municipalities to keep data center site interest secret for a year.
There are also a lot of hand-wavy bills creating commissions or studies of data center development, as well as a bunch laying out more specific zoning requirements for where they can be sited. But the four categories I detailed above seem, to me, those with the most potential to have a noticeable impact this year and to meet the political moment legislators are clearly trying to capture.
Now, I’m not capable of handicapping exactly how any of these individual measures will fare — predicting the specific odds of any single piece of state legislation making it through the legislative meat grinder is for suckers — but I suspect the number of them that are signed into law will be more than zero come year’s end.
I’m also sure I missed some bills, both good and bad. If you know of one, drop a comment below.
UTILITY COST EVENT: I’ll be joining some colleagues, as well as Ohio State Senators Kent Smith (D) and Bill Blessing (R), on Thursday for a discussion on utility corruption and costs and what Ohio legislators can do about them. RSVP for the virtual event here.
SIMPLY STATED: Here are links to a few stories that caught my eye this week.
The California Law Review Commission, an official body tasked with assessing areas of law and making recommendations to the state legislature, voted unanimously to support reforming California’s antirust laws.
D.C. Mayor Muriel Bowser is backing President Trump’s plan to hold an IndyCar race in downtown Washington.
California Gov. Gavin Newsom backed out of his own plan requiring Google to pay $250 million to California newspapers for the content it stole.
“SpaceX wants tax break to create jobs in low-income areas. Critics question the benefits.”
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Thanks again!
— Pat Garofalo
Pat, I so appreciate your coverage of this topic. Glad to see there is some traction in slowing down the ‘Wild West’ approach to data centers and AI. As a society, we need to become less dependent on so much technology in our lives, as the only way to really stop this runaway train.
Fantastic roundup of the state-level pushback. The NDA bans are probably the most critical near-term fix since transparency alone would kill alot of questionable projects before they even get off the ground. I worked on municipal broadband negotiations a few years back and saw how developers use information assymetry to their advantage.