Calculating the results of the data center backlash
Key Insight: Find out how midterm election results are altering the pace of data center construction.
Processing Content
What’s at Stake: Whether local ratepayers or data center developers will cover the costs of grid improvements.
Expert Quote: “The vote in the midterms has profound effects on the economy and particularly energy.” — Keith Martin, Partner, Norton Rose Fulbright U.S. LLP
Supporting Data: The $4.5 billion Virginia spent on data center sales and use tax exemptions.
Forward Look: Expect a proposed federal excise tax and curbs on data center tax breaks.
Data centers suffered stunning defeats at the hands of voters as local governments and the industry are being forced to reckon with the fallout.
“There were 47 ballot questions in the election,” said Keith Martin, a partner at Norton Rose Fulbright U.S. LLP
“One failed in North Dakota to add an extra layer of local reviews, the others all passed. The vote in the midterms has profound effects on the economy and particularly energy.”
Energy usage and rising utility rates are key factors in the backlash which helped flip party control in traditionally red states.
“The fact that Democratic governors won in Texas, Ohio, and Georgia has profound effects on the speed of data center construction,” said Martin.
The Bipartisan American Affordability and Jobs Act advanced by the Senate on Monday includes provisions to protect ratepayers from financing grid improvements required by data centers.
State and local government are weighing the amount of property tax coming in against the loss of sales tax being left on the table and the rise of local opposition.
Property tax typically provides debt service to bonds issued by local governments.
Virginia’s Joint Legislative Audit and Review Commission released a performance review of economic development incentives on Monday that trains its focus on date center financial impacts.
JLARC estimates the state spent $4.5 billion on the data center sales and use tax exemption.
Like many states, Virginia exempts data centers from paying sales tax when they upgrade computer chips, which happens every 18 months to five years.
According to JLARC, data center tax exemptions produced 18,130 jobs over the last five years for an average of 29 jobs per $1 million in investment from 2021 through 2025.
Virginia data centers increased the state’s gross domestic product to by nearly $4 billion, boosted personal income by about $2 billion, and generated 22 cents in state revenue for every dollar spent.
Loudoun County, home to data center alley reported $1.2 billion in real and personal tax revenue which accounts for 39% of the county’s budget.
Eleven states, including the data center powerhouses of Virginia, Texas, and Ohio are considering or have already ended the tax incentives that lured data centers to towns and counites.
Strategies of putting data centers on federally owned land has already inspired Congressional pushback.
Sen. Ron Wyden D-Ore., who is expected to take over the leadership of the Senate Finance Committee, is proposing an excise tax on data centers while curbing tax breaks for depreciation, research and development and investments in Opportunity Zones.
