After years of states pushing legislation to accelerate the development of data centers and the electric grid to support them, some legislators want to limit or repeal state and local incentives that paved their way.

President Donald Trump also has changed his tone. Last year he issued an executive order and other federal initiatives meant to support accelerated data center development. Then last month, he cited rising electricity bills in saying technology companies that build data centers must “pay their own way,” in a post on Truth Social.

As the momentum shifts, lawmakers in several states have introduced or passed legislation that aims to rein in data center development by repealing tax exemptions, adding conditions to certain incentives or placing moratoriums on data center projects. Virginia lawmakers, for example, are considering ending a data center tax break that costs the state about $1.6 billion a year.

“Who is actually benefiting from these massive data centers that, in many cases, are the size of one or two shopping malls combined?” asked Michigan Democratic state Rep. Erin Byrnes, who introduced a proposal to repeal the state’s data center tax exemptions. “They have a large footprint in terms of land and energy usage. And by and large, it’s not going to be the average resident who lives near a data center who’s going to benefit.”

Over the past few years, more data centers have been built in an effort to meet the demand for digital processing power, which has rapidly increased as more artificial intelligence systems come online. Data centers house thousands of servers that are responsible for storing and transmitting data required for internet services to work.

But as local communities voice growing outrage over rising electricity prices and environmental concerns brought by data centers, such as water and energy use, lawmakers in several states are hoping to slow data center development. By limiting incentives or placing moratoriums on new projects, state legislators are hoping to give themselves more time to determine whether the massive facilities are worth losing millions or more in tax revenue each year.

Some experts also say that developers and tech companies have exaggerated some of the benefits they bring to local communities. While the promise of new jobs sounds attractive, local leaders may face other concerns, such as the effects of diverting construction resources away from other purposes and higher energy costs caused by AI, said Michael Hicks, an economics professor at Ball State University in Indiana.

“A lot of households — and the people that are elected by households — and local governments are becoming more unnerved by the public pushback to data centers,” Hicks said.

Tech developers and data center operators are concerned, however, that the changes could hurt the rapidly growing industry. And most states and localities already require developers using incentives to follow certain requirements, said Dan Diorio, the vice president of state policy for the Data Center Coalition, a lobbying group for the data center industry.

State lawmakers have to consider how changes to incentive programs could upend years of construction, which has long-term business impacts, Diorio said.

“I think data centers are very much the backbone of the 21st-century economy,” he said. “We’re generating economic activity in states, contributing to state-level GDP, contributing significantly to labor income and state and local tax revenue, and creating significant amounts of jobs. I mean, we’re just jumping into something preemptively here.”

Incentives granted

At least 37 states offer incentives that are available to data centers, including sales tax exemptions and property tax abatements, according to the National Conference of State Legislatures. Sales tax exemptions, the most common incentive, allow data center developers to buy computers and other equipment at a much lower cost.

“I think these are one of many factors that the data centers are looking at, along with the cost of electricity, the cost of construction, land and things like that,” said Nicholas Miller, a policy associate at NCSL. “These incentives are one way that states are trying to pitch themselves as competitive to this industry.”

In 2020, Maryland implemented a program that exempts data centers from sales and use taxes if they provide at least five jobs within three years of applying to the program and invest at least $2 million in data center personal property. The first four years of the program cost the state $22 million — but $11 million of that came in 2024 alone, as the costs grew, Democratic state Del. Julie Palakovich Carr said.

Concerned about this and the impact of data centers on residents’ electricity bills, Palakovich Carr introduced legislation this year that would repeal the state’s sales and use tax exemptions for personal property used at data centers. The measure, which is under consideration in the House, would also restrict localities in the state from eliminating or reducing assessments for personal property used in data centers, which drew opposition from the Maryland Association of Counties.

The amount of money states are forfeiting to provide tax breaks for data centers is increasingly concerning, Palakovich Carr said.

“Unfortunately, that’s the turn we’re seeing across many other states,” she said. “The price starts out maybe in line with what we think it’s going to be. But over time it just costs more and more.”

Similar bills that would repeal or halt state incentives for data centers have been filed in Arizona and Georgia.

“When we look at potential subsidies for businesses, I’m really looking at it from a frame of incentivizing new behavior rather than just giving away money for things that the companies were going to already do anyways,” Palakovich Carr said. “I think it’s really important that once these things get put in place, we look at the data and see what’s happening on the ground.”

In 2024, Michigan enacted sales and use tax exemptions on certain data centers through at least 2050.

Now, with developers looking at more than a dozen sites for potential data centers, public sentiment has soured, said Byrnes, who had voted against the measure. Communities across the state began organizing in an effort to stop data centers from coming to their neighborhoods because of environmental concerns and energy costs, she said.

The outcry prompted Byrnes to co-sponsor a bipartisan package of three bills that would repeal the 2024 law.

“We’re taking a stand with this legislation to say that we don’t believe data centers should be offered these exemptions,” she said. “I believe it aligns with public sentiment.”

Lawmakers in a handful of states — including New York, Oklahoma and Vermont — have filed bills that would place a temporary moratorium on all data center projects and require studies of their impacts.

Georgia Democratic state Rep. Ruwa Romman introduced a measure this session that would put a moratorium on new data center projects until March 2027. The proposal would give the legislature time to study the impact of data centers on the state’s natural resources, environment and other areas.

“We have such a beautiful state and it would be a damn shame to completely and utterly wreck it and its landscape for short-term gain,” Romman said. “These data centers aren’t bringing jobs. They’re saying they’re bringing the revenue, but there’s a ton of fine print on the revenue that’s coming in. So, I’ve been urging my colleagues from every side of the political spectrum to just take a beat.”

In 2021, the Oklahoma legislature approved a measure from current Republican House Speaker Kyle Hilbert that excludes new data centers from qualifying for an exemption program that allows certain manufacturers not to pay property taxes for their first five years in business. Any data centers that qualified for the program in the five years prior to the law, however, can continue to apply for exemptions.

This year, as more project proposals were made, Hilbert introduced legislation to ensure no data centers could “slip through the cracks.”

“These aren’t the days of being able to build a data center, cut deals with NDAs, then start turning dirt before the constituents even know what’s happened,” Hilbert said. “Those days are over, and data centers need to be proactive in their messaging and talking to people about their concerns.”

Costs vs. benefits

Last year, Virginia, home to the most data centers in the country, gave up $1.6 billion in sales and use tax revenues from data centers, state data shows. That’s a 118% increase from the previous year, according to a report from Good Jobs First, a watchdog group that focuses on economic development incentives. Another report from the group said Georgia is expected to lose at least $2.5 billion to data center sales tax exemptions this year, 664% higher than the state’s previous estimate.

Virginia state lawmakers are considering legislation that would require data centers to achieve high energy efficiency standards and decrease their use of diesel backup generators in order to be eligible for the state’s sales and use tax exemption. The measure, which passed the House, is now moving through the Senate.

Before the end of his term, former Virginia Gov. Glenn Youngkin, a Republican, suggested a provision in his proposed state budget that would extend the data center tax incentive from 2035 to 2050. The Senate’s budget bill, however, would end the incentive altogether on Jan. 1, 2027. It’s not clear if state leaders, including current Democratic Gov. Abigail Spanberger, support the measure.

While states can put a specific number on the tax losses, it’s much more difficult to determine how much data centers contribute to local communities and the state, Miller said.

Virginia brings in a significant amount of revenue from the property taxes for each facility. Local construction firms, restaurants and other small businesses also benefit from ongoing projects, he said.

“This is the big question,” Miller said. “With all economic development projects, it’s generally a lot easier to measure the cost of the incentive directly versus the benefits.”

The changing incentive landscape may cause instability within the data center industry, said Diorio, of the Data Center Coalition. Data center projects are large-scale capital investments that play out for several years, but changing policies could upend that progress.

“When states look at these policies or consider abrupt ends to programs, that creates significant market uncertainty,” Diorio said. “It will have a significant long-term impact on the viability of that market for data center development. Industries are very responsive to market signals, and any kind of uncertainty will bring up a red flag because you’re looking to invest for the long haul.”

Stateline reporter Madyson Fitzgerald can be reached at mfitzgerald@stateline.org.

An Amazon Web Services data center is shown situated near single-family homes in Stone Ridge, Va., in 2024. As Americans grow increasingly frustrated over their electricity bills, states are trying to keep the nation’s growing number of data centers from causing higher energy costs for consumers. (Photo by Nathan Howard/Getty Images)

As Americans grow increasingly frustrated over their electricity bills, states are trying to keep the nation’s growing number of data centers from causing higher energy costs for consumers.

For years, many states competed aggressively to land data centers, sprawling campuses full of the computer servers that store and transmit the data behind apps and websites. But many officials are now scrutinizing how those power-hungry projects might affect the electric bills of households, small businesses and other industries.

Oregon last year became one of the first states to enact a law requiring utilities to charge data centers different electric prices than other industries because of how they drive up the cost of energy production and transmission.

“We are now making data centers pay a higher rate commensurate with the amount of energy they’re sucking out of the system,” said Oregon state Rep. Tom Andersen, a Democrat.

Republican and Democratic leaders in at least a dozen states have targeted data centers with separate, higher electric rates to protect other customers. States also are requiring long-term commitments and financial guarantees through collateral before greenlighting infrastructure investments for new data center projects. But lawmakers acknowledge that numerous factors affect energy prices, so targeting data center-specific costs can be complicated.

An increasingly digital world and the rise of energy-intensive artificial intelligence has led to major expansion of data centers: Consultant McKinsey & Company expects companies to spend nearly $7 trillion worldwide on data centers by 2030. But the industry is facing growing scrutiny, from neighbors who don’t want to live near the massive server farms and from residents worried about how data centers will affect their own swelling utility bills.

Delaware legislation that would charge data centers higher rates advanced out of committee last week. On Tuesday, a Florida state Senate committee approved a bill that would create new rate structures for data centers.

In Oklahoma, a Republican state senator has proposed a moratorium on new data centers until late 2029, allowing the state to study how data centers affect utility rates, the environment and property values.

Separate legislation from state Rep. Brad Boles will seek to protect other ratepayers from the costs of data centers. Boles, the Republican chair of the state Energy and Natural Resources Oversight Committee, said his in-the-works measure would ensure data centers pay their fair share.

Boles told Stateline that his constituents are increasingly worried about data centers, with a dozen potential major ones proposed across the state.

“We’re trying to ensure that those data centers pay for their own infrastructure and we don’t shift that cost or burden to everyday Oklahomans,” he said.

In Oregon, Andersen’s legislation created a new rate structure for data centers with long-term contracts and required regulators to separate the costs of those facilities from other ratepayers.

But consumer advocates have already accused the state’s largest utility of trying to skirt the new law by making residential customers pay part of the long-term cost of supplying large data centers in a pending rate case.

Andersen, a member of the state House Committee on Climate, Energy and Environment, said the new rate structure is unlikely to immediately lower consumer bills. Rather, it aims to curb future increases as data centers require more power generation and transmission.

“We’re not going to change the rates that are being currently paid by the ratepayers and the users of the electricity,” he said. “It’s just going to stop future raises.”

The data center boom

Rising utility bills continue to outpace inflation, sparking anger from consumers and more scrutiny from state regulators, governors and lawmakers.

The boom of data centers is frequently cited as a prime reason for rising electricity prices, as their operation requires more power generation, transmission and distribution upgrades. A Bloomberg News analysis in September found wholesale electricity costs as much as 267% more for a single month than it did five years ago in areas with significant data center activity.

Data center companies say they aren’t the only reason prices are rising.

“It’s inaccurate to draw a clear line between large load customers like data centers coming online and increases in prices. It’s just not that simple,” said Lucas Fykes, senior director of energy policy and regulatory counsel at the Data Center Coalition, a trade group representing data center owners and users, including Amazon, Meta and Visa.

He said many factors have contributed to higher electricity prices, including extreme weather events and the nation’s aging electric grid.

Fykes said his organization opposes rate structures that treat data centers differently from other large electric users such as industrial sites. The organization is working with regulators as states increasingly implement practices to ensure residents and small businesses aren’t on the hook for big energy investments if major projects including data centers don’t come to fruition.

Fykes said the country is likely just in the “beginning innings” of a longer ramp-up in technology and power needs.

“We are also in a global race to build out data centers, to support AI, to support cloud infrastructure,” he said. “It’s important to make sure that we maintain those assets here in the United States.”

That can pose competing interests for political leaders, including mayors, who have pushed hard to land investments from tech companies.

“We want to be leaders in AI, but we don’t want the infrastructure needed to support it,” said Rusty Paul, the mayor of Sandy Springs, Georgia, in the Atlanta metro area.

He was among several mayors addressing the issue of data centers at last month’s winter meeting of the United States Conference of Mayors in Washington, D.C. On a data center panel, Paul acknowledged the effect of Georgia’s tax incentives for data centers: “They’re just popping up everywhere,” he said.

But utilities and regulators are also making long overdue grid upgrades that aren’t tied to data centers, he said.

“The cost of electricity is going up for everybody — and it’s not all related to data centers,” he said.

A bipartisan push

The Georgia Public Service Commission last year created new rules that officials said would protect ratepayers from data center costs. In addition to covering costs of power consumed at their facilities, data centers would have to fund the costs incurred by upstream generation, transmission and distribution, the regulator said.

But lawmakers aren’t convinced those steps went far enough.

State Sen. Chuck Hufstetler, a Republican, is again pushing legislation that would solidify the regulator’s rules into law. His bill would prohibit utilities from passing along the fuel, generation or transmission costs of data centers to other customers.

He told Stateline that the regulator’s rules need to be codified into law so they can’t be weakened later.

Hufstetler said rising utility bills are among the biggest issues facing his constituents. High prices played a key role in November’s election, when Democrats flipped two seats on the state’s Public Service Commission board — the first time Democrats won statewide constitutional office in nearly two decades.

“I saw people with MAGA hats going into the election polling places that were saying, ‘I’m not voting for those guys that raised my rates,’” Hufstetler said, referring to the Republican incumbents who lost.

Hufstetler said the bill, which passed out of committee last year, has already gained major bipartisan support in the Senate, where it is sponsored by multiple Republicans and Democrats.

“This is very bipartisan,” he said. “We have all heard from our people around the state of Georgia.”

The Georgia Public Service Commission agrees in principle with the legislation, said agency spokesperson Tom Krause. But he said the regulator worries about losing flexibility if its rules are written into law.

“Not just this bill, but whenever the legislature codifies a rule that we put in place, we get a little nervous because it can tie our hands in special circumstances,” he said.

A complex challenge

As part of implementing a law enacted last year, Maryland’s utility regulator is weighing a new rate structure for data centers and other large load users.

Proposed regulations would require certain preapproval analysis for heavy power users, a separate rate tariff for data centers and collateral to ensure other ratepayers don’t end up paying for major investments if projects do not come to fruition.

Maryland’s Office of People’s Counsel, an independent agency representing residential utility users, said the proposed changes meet statutory requirements but could do more to protect consumers.

In a news release last month, Maryland People’s Counsel David S. Lapp said residents are already facing higher costs from data centers from outside the state.

“While we push for better federal rules to address those costs, Maryland has the power—and customers a clear need—to make sure data centers within Maryland take on every cost that they impose on residential customers,” Lapp said.

Democratic Gov. Wes Moore recently joined 12 other governors and the Trump administration in urging the regional grid operator, PJM Interconnection, to shield residents and businesses from the infrastructure costs from data centers.

Maryland state Del. Lorig Charkoudian, a Democrat, said the grid operator has for years failed residents in the 13 states plus the District of Columbia that it serves. By delaying renewable energy projects, she said, PJM has kept older, more expensive power plants online, driving up prices as data centers increase demand.

PJM’s board last month rolled out a new data center plan that it said would improve demand forecasting, accelerate the addition of new generation projects and give states a larger role.

Charkoudian said states and utilities struggle to determine just how much power is needed. Data center users shop around for sites, which can cause wildly inaccurate forecasts of just how much power a utility will need.

“It actually has a very concrete financial impact on ratepayers,” she told Stateline. “And so that’s why one of the things that really could make a difference for ratepayers is if we actually had an accurate count of how much we’re getting online.”

While some of those challenges lie outside the realm of state control, Charkoudian said there are things the state can do, including the new rate structure for larger users. She’s crafting a bill encouraging data centers to curtail their power usage during peak periods, such as hot days, when the electrical system is taxed by heavy usage of air conditioners, Maryland Matters reported.

Charkoudian said adding solar generation and storage are low-cost ways to respond quickly to demand. And states can avoid the need for more generation by doubling down on energy efficiency programs that lower demand and also consumer costs.

“The best time to fix this was five years ago,” she said. “The next best time is right this minute, because it’s only going to get worse.”

Stateline reporter Robbie Sequeira contributed to this story. Stateline reporter Kevin Hardy can be reached at khardy@stateline.org.