The Cost of State Data Center Handouts Is About to Explode

Who's counting? Nobody!

Photo credit: CommScope

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Part of the way through a recent New York Times report on big tech’s “frenzy” of spending on artificial intelligence was this data point: “Meta, Microsoft, Amazon and Google have told investors that they expect to spend a combined $320 billion on infrastructure costs this year. Much of that will go toward building new data centers — more than twice what they spent two years ago.”

Artificial intelligence is its own public policy flashpoint at the moment — clearly! — but this factoid also made me think about state data center subsidies and the effects that planned increase in data center spending will have on state budgets. If the amount tech firms intend to spend comes anywhere close to bearing out, state data center subsidy costs are about to explode, and no state seems ready to do much of anything about it.

Regular readers will know that big tech and its allies have pushed states to subsidize data center construction and maintenance as an economic development tool, even though data centers are nothing of the sort.

They create few jobs, have no knock-on economic development effects, and come with a bevy of costs to society, such as increased power demand and environmental degradation.

The only benefit they consistently provide is property tax revenue, as data centers usually sit on previously empty fields, but too many officials act as if the choice for their community is between a data center or nothing, when something more economically useful is equally as capable of providing property tax revenue. As I’ve said, the rhetoric used to push these programs is dumb, and the political maneuvering around their adoption is even dumber.

Nevertheless, more than 30 states provide public handouts for data centers. And here’s the crucial point: In none of those states is the amount that any one corporation can claim or that the state can pay out overall capped in any way. So as big tech spends more and more, state costs are going to spiral out of control, and there will be nothing anyone in public office can do about it absent legislative changes.

In a recent report, Good Jobs First noted that this is already happening in states across the country. For example, in February 2023, the Texas state comptroller estimated that data center subsidy costs in 2025 would be $130 million. The actual 2025 cost: $1 billion, with a b.

Pet the report, the cost of Illinois’ data center tax exemption grew by 3,600 percent between 2020 and 2024, from $10 million to $370 million. Arizona’s increased by 1,200 percent in the same period, from $1.4 million to $19 million. At least 10 states are already losing $100 million per year on data center subsidies, and that number will only grow as more data centers are constructed and more corporations dip their hand into public programs that are bottomless on paper.

And remember, this money is paying for large tech firms to build out their necessary business infrastructure, without which they cannot exist. Even places with existing, robust data center industries, such as Virginia, can’t bring themselves to ever pull the plug on their subsidy programs, leaving costs to accumulate in perpetuity.

The inability to put a firm number on revenue losses is going to make budgeting — generally no cakewalk at the state level as it is — even harder. I’ve written about this problem before in other economic development tax break programs, where previously unknown beneficiaries come crawling out of the woodwork to claim credits, throwing off the state’s ability to budget. That will be supercharged in an era of endless data center giveaways.

Just read this paragraph from a recent Spotlight PA piece about two planned Amazon data centers in Pennsylvania: “But many key details, like the centers’ full impact on electricity supply and prices, and the amount of tax revenue the state will forfeit to Amazon, are still unknown.”

That seems problematic, to say the least.

This money is also flowing out the door at the same time that Congressional Republicans are intent on gutting funding meant to aid the development of alternative energy sources, meaning the cost of electricity is potentially going to spike and the supply of it is going to take a hit.

So states are going to be subsidizing the buildout of energy-intensive data centers for big tech at the same time that utilities are going to be struggling to provide the baseline amount of power already necessary for local residents.

And I’ll say again, this is all to help large tech firms build the infrastructure they need for their businesses to literally exist.

At this point, it should be clear that I think states should abolish their data center subsidy programs and let big tech pay for its own stuff on its own dime. Absent that, given the rapid planned expansion of data centers, states need to place limits on their programs, both in terms of what any one corporation can claim over a given period and the overall amount their state is willing to spend. Without such action, states are simply going to start bleeding red ink thanks to big tech.

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SIMPLY STATED: Here are links to a few stories that caught my eye this week.

• The New York Times explained how Democrats learned to love film and TV production subsidy programs they used to deride as “corporate welfare.”

• Speaking of, Wisconsin legislators plan to re-start the state’s film and TV production tax credit, after having let it sunset in 2013. (Read more background on this issue here.)

• Advocates in Michigan are pushing for a ballot measure that would ban political donations by utilities and state contractors.

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— Pat Garofalo