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.

Data centers and local communities would be barred from working in secret under legislation that received a public hearing before a state Senate committee Tuesday.

The Senate Committee on Utilities, Technology and Tourism also heard testimony on a pair of competing bills, both pitched as ensuring that data centers pay their own way for the electric power they use and controlling how they use water resources.

SB 969 would impose a blanket ban on non-disclosure agreements between data center companies and the municipalities where they’re planning projects.

“Unfortunately, we have witnessed a troubling pattern in Wisconsin and throughout our country — community leaders are signing secrecy deals with big tech companies and their agents to conceal material facts about the development of billion-dollar data centers from the public,” said Sen. Andre Jacque (R-New Franken), the bill’s author, in his testimony on the measure. “These same entities seek to hide vital information about the scope and impacts of their intended developments from the local officials charged with guarding their citizens’ welfare, undermining sound decision-making and eroding confidence in the process.”

The secrecy surrounding a data center project in Menomonie prompted local opposition that led the community’s city council to pass an ordinance in January stopping a developer from advancing the $1.6 billion project.

“This bill is really about trust,” said state Rep. Clint Moses (R-Menomonie), the author of the bill’s Assembly companion. “It makes sure those conversations happen in the open and not behind closed doors.”

A data center industry lobbyist opposed the measure, asserting that a ban on non-disclosure agreements, or NDAs, could stall Wisconsin’s emergence as a prime data center location.  

Brad Tietz, the state policy director for the Data Center Coalition, said the industry group has been working with its member businesses “on model frameworks that ensure early and proactive community engagement and transparency while safeguarding sensitive proprietary and security information.”

Non-disclosure agreements are especially important in the early stages of data center site selection, “where a company may be considering multiple sites and has not yet made a final decision,” Tietz told lawmakers. “But to simply put a blanket opposition on NDAs would put Wisconsin at a competitive disadvantage right when it is primed to do exceptionally well in this industry.”

Data center utility costs

The bulk of Tuesday’s hearing focused on two other pieces of legislation, one authored by Democrats and the other by Republicans. Both measures were written with the intent of ensuring that power-hungry data center developments don’t pass off their electricity costs to the rest of the public.

SB 729 is authored by Sen. Jodi Habush Sinykin (D-Whitefish Bay) and state Rep. Angela Stroud (D-Ashland). The Assembly companion is AB 722.

“Wisconsin must establish a comprehensive and responsible regulatory framework that protects Wisconsin taxpayers, workers, and our natural resources now and into the future,” Habush Sinykin told the committee. “Yet here’s the rub. Currently, Wisconsin has no statewide regulatory standards governing hyperscale data centers. None.”

Habush Sinykin said that the bill was written in consultation with the state Public Service Commission. It would put data centers in a new class of electric power users, “very large customers,” and require utilities serving those users to file a rate case for that class every two years.

“I believe that we all have a shared goal of ensuring that the public does not pay for the energy expenses of data centers,” Stroud told the committee. “According to the Public Service Commission, establishing a very large customer class tariff is the most effective tool currently available to ensure that energy-related costs are borne by data centers rather than shifted on to the general public.”

Utilities would also be required to report quarterly their data center users’ energy consumption and sources and make that information public.

Because data centers are also heavy uses of water, the bill requires water utilities to notify the PSC of individual customers that use 25% of the utility’s water volume.

The Habush Sinykin/Stroud bill includes provisions to encourage renewable energy use and the use of union labor. In order to qualify for a sales and use tax exemption from the Wisconsin Economic Development Corp., the data center must derive at least 70% of its energy from renewables and pay the construction workers the prevailing wage in the region if they aren’t covered by a union contract.

The committee chair, Sen. Julian Bradley (R-New Berlin), questioned those provisions.

“This bill appears to me as though it’s going to say, ‘Well, you can come here. We understand you bring a massive economic impact, but actually we want more,’” Bradley said. “It’s going to drive them away from the state of Wisconsin and then we’re going to lose out.”

But Stroud said data center developers have been enthusiastic about adopting clean energy.

“We are extending tax credits to the richest companies in the world. It is not a small thing to do that,” Stroud said. “We should be getting a huge benefit. And it would change the conversation, I think, in a lot of these communities if they had access to significant benefits.”

Republicans go in a different direction

The alternative bill — AB 840/SB 843, authored by Rep. Shannon Zimmerman (R-River Falls) and Sen. Romain Quinn (R-Birchwood) — mostly takes different approaches on all of the issues involved. The Assembly version passed that house in January on a mostly party-line vote of 53-44, with two Democrats voting in favor of the legislation and one Republican voting against it.

The bill directs the PSC, in writing its rate-making orders, to ensure that the utility costs of large data centers aren’t passed off to any other customer, but doesn’t offer specific directions on how to do that. It includes language stating that developers must hire Wisconsin workers to the extent possible.

The legislation also would require that any renewable energy facility that primarily serves the load of a large data center be located on the data center property.

“This will improve reliability by reducing dependence on a distant power grid and safeguards our communities from being burdened with large energy projects that exist solely to serve data center facilities elsewhere,” Quinn said.

The bill also requires the water used at a center to be recycled, and includes requirements that data center developers post a bond that can be used to reclaim the property if the project is abandoned before it’s completed.

Earlier, Stroud said the GOP bill’s requirement restricting renewable energy to on-site at data centers would be “a non-starter for many of the companies seeking to locate in our state.”

In his testimony, however, Quinn defended the provision as a safeguard against saddling other customers with the data centers’ energy costs. “I believe we should make it more attractive for data centers to build their own power supply,” he said.

Sen. Melissa Ratcliff (D-Cottage Gove) asked Quinn why he and Zimmerman didn’t work with Sinykin and Stroud on a common piece of legislation. Quinn replied that the provisions the Democrats prioritized wouldn’t pass in the current Legislature, including the prevailing wage provision and the renewable energy provisions.

During her portion of the hearing, Habush Sinykin said the provision for recycling water in the Republican bill was of interest to her. She also emphasized that lawmakers should work together across the aisle on legislation to address the broader concerns about data centers.

“The Senate is here through March, and the Assembly can be called back as well,” Habush Sinykin said. “I believe it makes sense and the conditions warrant a call for a special session or an extraordinary session, because people in Wisconsin do not want to wait another year or more to have regulation filling this vacuum.”

Tom Content, executive director of the Citizens Utility Board, testified that affordability was a top concern for Wisconsin ratepayers.

“Electricity costs are surging at a pace higher than inflation over the past four years,” Content told the committee. “Wisconsin has the second highest electricity rates in the Midwest.”

His organization “recognizes the intent of the authors on both sides to shield customers from higher costs,” Content said. “Our hope and expectation, given that affordability is job one right now, is that lawmakers will work together in the remaining days of the session and across the aisle to take the most workable provisions of both and find common ground on a plan that the governor will sign into law.”

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At a public hearing held by the Wisconsin Public Service Commission Tuesday, dozens of Wisconsin residents decried the effects massive data centers could have on the state’s electricity rates and ability to adopt renewable energy sources. 

The three-member PSC is considering a proposal from the Wisconsin Electric Power Company to establish a tariff system for providing electricity to massive data centers. Under the proposal, “very large” customers that would be subject to the tariff would have a combined energy load of 500 megawatts — the equivalent of powering about 400,000 homes. 

The first phase of Microsoft’s $13.3 billion data center project in Mount Pleasant is projected to require 450 megawatts. 

Critics of the proposal say that under this system, regular consumers will still be on the hook for 25% of the infrastructure costs associated with increasing the state’s energy load. 

Over the past year, the growth of data center development in Wisconsin has spurred an increasingly tense debate. Local governments have been tempted to allow their construction as a source of property tax revenue while local residents raise concerns over energy and water use, the conversion of historical farmland, the ethics of artificial intelligence and long-term environmental impacts.

The massive energy needs of data centers have become the central issue in the debate, with people in Wisconsin and around the country questioning how to manage the demands of giant corporations seeking to use orders of magnitude more energy than is currently being produced.

“I speak to you not only as a We Energies customer, a member of the Wisconsin State Senate, but on behalf of people across Wisconsin who have communicated to me their worry and fear about the development of hyperscale data centers,” Sen. Chris Larson (D-Milwaukee) said at the hearing. “This worry and fear transcends political divides and income brackets, residents and small businesses alike fear that these data centers will fundamentally alter and potentially destroy our Wisconsin way of life, and with good reason; the scale of the proposed development is unprecedented.” 

Larson added that often “this debate is framed as a false choice that our state must prioritize economic growth or meet our clean energy and climate goals. This is simply not true. In reality, Wisconsin can and must be a leader in pursuing both advancing economic development while accelerating a just transition to affordable, reliable, clean energy in a way that does not harm residents, health, economic security or the environment.”

The vast majority of those testifying during the more than three-hour hearing Tuesday afternoon were opposed to the structure of the proposed system — largely due to the 500 megawatt threshold proposed by the utility company. 

Several people said they were concerned that the threshold being set at this level would encourage the growth of still large data centers that use less than 500 megawatts of energy — and the costs of those centers’ electricity use will be passed on to regular consumers. 

“I submit that 500 megawatts is at least an order of magnitude too high,” Pleasant Prairie resident Charles Hasenohrl said. “The threshold should be lower than 50 megawatts, where at that point, companies are required to cover all costs, which again include generation, transmission and distribution.” 

Opponents also said they were concerned that data centers increasing the energy demand in Wisconsin will encourage the PSC and the state’s utility companies to construct new natural gas power plants, instead of encouraging the growth of renewable energy sources such as solar and wind.

“Renewable energy is the cheapest way to generate electricity, and it’s only getting cheaper,” Dr. Jonathan Patz, a professor of health and the environment at UW-Madison, said. 

Patz added that burning fossil fuels to provide energy for currently proposed data centers in southeastern Wisconsin will increase air pollution not only in the immediate region but spread to Chicago and western Michigan. 

“Because the right choice happens to be both the safest and the most affordable. That’s solar and wind power,” Patz said. “Let’s stop killing people unnecessarily with pollution from burning fossil fuels, especially knowing the multi-decadal life span of a power plant. The rest of the world is turning to renewable energy. Why should the PSC prevent us from transitioning to clean energy and improving our health at the same time?”

The handful of people who testified in favor of the proposal were union representatives. Several of the state’s unions have been vocal in supporting the construction of data centers, arguing that their members will benefit from the jobs created while the centers are being built. The union representatives said that the state should work to protect costs from being passed on to ratepayers, but that the state shouldn’t discourage data centers from coming to Wisconsin. 

“These projects require significant amounts of power, far beyond what’s available today to be operational and successfully run,” Jim Meyer, business manager for IBEW Local 2150, said. “Faced with this problem, the traditional method of having a utility company add power generation capacity through building more power plants, then spreading those costs over its customer base, would simply be unfair to its everyday customer, like my membership, who live and work in the areas and are also customers themselves. The VLC tariff will put the tab for those plants exactly where it belongs, with those very large customers who need that new electric load.”

PSC Administrative Judge Michael Newmark said that the job of the commission isn’t to decide if the state should go all in on encouraging data center construction but only the “reasonableness of the rates, terms, and conditions of electric service” in the We Energies proposal. Several people testifying expressed frustration that often the commission holds public hearings only to ultimately vote against the majority sentiment of the public and side with corporate utility interests. 

“I am wondering whether this is an exercise in futility,” Milwaukee resident Ted Kraig said. “Technologically, it makes no sense to be building up old fossil fuel infrastructure, and still, the Public Service Commission just goes and basically rubber stamps it. My concern is that we can have 1,000 people testifying with the best evidence and arguments imaginable, but the Public Service Commission sitting there with little check boxes … We Energies gets whatever it wants.” 

The Public Service Commission is expected to make its decision on the tariff by May 1.

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Correction: An earlier version of this story incorrectly identified Judge Michael Newmark. We regret the error