Pushback against expansion of data centers for AI grows by US lawmakers

The rapid growth of data centers, driven by surging demand for artificial intelligence and cloud computing—particularly since the late 2022 launch of OpenAI’s ChatGPT—is sparking both a rush for economic gains and a wave of political and community resistance across the US States are offering substantial financial incentives, sometimes in the tens of millions of dollars, to lure data center investments. However, these offers are increasingly being scrutinized by lawmakers and residents concerned about the environmental and infrastructure toll.

Data centers, especially massive “hyperscalers,” require vast amounts of electricity, land, and water, but often generate few permanent jobs once built. Advocates argue their construction fuels local economies, creates short-term employment, and generates tax revenue. Yet according to an article by AP, critics say the long-term community benefits are limited. “It’s often a nonstarter if you don’t have them, for at least the hyperscalers,” said Andy Cvengros of real estate firm JLL, referring to states without tax incentives. “It’s just such a massive impact on the overall spend of the data center.”

In response, many state legislatures are moving quickly. Pennsylvania lawmakers are drafting legislation to fast-track data center permits, worried the state is losing out on billions in potential investments. Kansas has approved new sales tax exemptions for data center construction and equipment, while Kentucky and Arkansas have expanded similar exemptions to include more projects. Michigan’s version includes safeguards such as clean energy use, energy efficiency requirements, and mandates that centers pay for their own electricity.

Tax exemptions have become so widespread—adopted by roughly three dozen states—that they are seen as essential for attracting hyperscale developments.

Growing opposition

But as more data centers are proposed or built, the article notes that their resistance is mounting in states already feeling the burden on power grids and local resources.

Oregon lawmakers are proposing legislation that would require data centers to cover the full costs of power infrastructure needed to serve them. Georgia is considering a similar measure. In Virginia—the US’s most data center-saturated state—Gov. Glenn Youngkin vetoed a bill that would have required developers to disclose more information about their projects’ water use and noise pollution.

In Texas, where a 2021 winter storm caused a massive and deadly power failure, lawmakers are grappling with how to balance the booming data center demand with grid reliability. A proposed bill would allow for faster hookups between data centers and power plants, but includes controversial provisions. These would empower utility regulators to approve such agreements and compel large electricity users like data centers to switch to backup generators in emergencies.

These provisions have stirred concern among business groups. Walt Baum, CEO of Powering Texans, warned that they could be deterring data center developers. “You’ve seen a lot of new announcements in other states and over the last several months and not as much here in Texas,” Baum told House members during a May 7 committee hearing, as cited in the article. “I think everybody right now is in a waiting pattern and I worry that we could be losing to other states while that waiting pattern is happening.”

As AI and cloud computing continue to drive data center demand, states are caught between offering attractive incentives and managing the strain these facilities can place on local communities and infrastructure. The outcome of this tension could shape where and how the next wave of digital infrastructure is built across the US.

By Nazrin Sadigova