The governors of two top Midwest destinations for data centers have frozen tax breaks for the projects as grassroots opposition groups begin building coalitions.
Throughout the Midwest, data centers have emerged as a controversial issue, particularly hyperscale data centers, the type that power artificial intelligence. Some local governments have passed data center pauses or moratoriums, but fiscal incentives like major tax breaks are often decided at the state level.
Ohio Gov. Mike DeWine paused new requests for Ohio's data center tax exemption on May 27, after
"I fully support the Ohio General Assembly's work to study the issue and bring forward facts about data centers, including the local benefits to communities when tax exemptions are granted," said DeWine — who
"As this work is ongoing, I believe it is appropriate for the Ohio Tax Credit Authority to pause its consideration of new data center tax exemptions while the full impact of data center growth in Ohio is being reviewed," he said.
DeWine is a Republican, and the legislature that voted to end the tax break is GOP-dominated.
"Ohio has many positive features that are appealing to the data center industry," said Molly Bryden, a researcher at Policy Matters Ohio, a Cleveland-based policy research nonprofit with progressive leanings. "In addition to our land availability, or our skilled labor force, we have a dearth of regulation that would set up more guardrails around data center development.
"And because data center companies tend to shop around for more favorable regulatory landscapes, that is a major factor in Ohio's ranking for data center growth compared to other U.S. states," she added. "As of right now, we have, I believe, the fifth-largest data center market in the country."
Data center companies looking to develop new projects or reinvest in existing facilities will "strongly consider" the tax incentives offered by different states, Dan Diorio, vice president of state policy for the Data Center Coalition, a lobbying group for tech companies and data center developers, said by email.
"Narrowing or eliminating a state's sales tax exemption would discourage data centers from modernizing equipment and making continuous investments in new energy-efficient technologies," he said. "It would cause the state to relinquish significant long-term economic investment (especially in rural and industrial areas seeking growth and revitalization), high-wage jobs and critical tax revenue to neighboring states."
Policy Matters Ohio's Bryden said on the legislative front, there's been some "pretty important energy picking up around the data center issue here."
The General Assembly recently convened a Select Committee on Data Centers to gather input from concerned citizens and interested parties like the data center industry and building trades unions. One of the committee's first steps was to hear public testimony from Ohioans, Bryden noted.
"That committee hearing generated a lot of opposition from residents, particularly from communities facing planned data centers or data center expansion," she said. "We've been hearing from a lot of community members who have expressed concern about… the pace at which data center growth is proliferating across the state, especially when a lot of these local economic development deals are being made behind closed doors, concealed by" nondisclosure agreements.
In recent years, the legislature has passed some laws favorable to data center developers, such as
"Since House Bill 15 passed last year, the Ohio Power Siting Board has approved over 2,000 megawatts of natural gas-powered
House Bill 479, a budget correction bill, significantly tightened the language around the public information request exemption so that it covers only individual payroll information, Bryden said, but DeWine had yet to sign that bill as of Tuesday morning.
"I think this local opposition that's growing is really starting to be heard and better understood by lawmakers," she said.
Some of the power to control data center development lies with local zoning boards. But that can be a double-edged sword; Michigan's Saline Township tried to reject a data center's rezoning application, only to face a lawsuit from the data center developer, Related Digital, which the township settled, because it said it couldn't afford to litigate the case in court.
But Bryden said local governments can still attach more strings to zoning approvals.
"Local officials could create better protections for the surrounding community by establishing setback requirements, or (provisions) that would support the use of community benefits agreements on these deals," she said. "Requiring the company to commit to making more meaningful investment in the local community — needed infrastructure upgrades, investing in the school district."
In Illinois, Gov. JB Pritzker on June 5 paused new data center tax incentives in his state, effective July 1.
"Illinois has an opportunity to continue leading in technological innovation and economic growth, but we also have a responsibility to protect working families and local communities as the data center industry rapidly expands," Pritzker, a Democrat, said in a statement.
"I am directing my administration to pause the processing of data center agreements while we continue working with the General Assembly and stakeholders on a comprehensive framework that protects affordability, safeguards our natural resources, and ensures responsible growth," he said.
From Jan. 1 to Jun. 12, the state received 36 applications for the tax break from data center developers, a spokesperson for the governor said.
Policies that would end backroom deals and force data centers to pay their fair share of water and energy costs were particularly well-received by survey respondents, getting 95% support and 96% and 92% support, respectively.
The POWER Act — data center regulation
In
"The governor has been engaged and laid out the framework on this and had to take action when the General Assembly didn't," a spokesperson for the governor said by email.
At a Monday
"I'm not opposed to local governments deciding that that's what they want to do," he said of data center moratoriums. "I think there are tradeoffs. But I think if we had regulations that protected the local communities, you'd have fewer people saying, 'We don't want it.'"
In other parts of the Midwest, local residents are forging coalitions to take aim at tax exemptions, NDAs and other advantages states allow data centers.
On June 13, hundreds of Wisconsinites heard concerns about data centers — not only
The forum in Eau Claire suggested that
"Municipal finance is complicated, our state laws are complicated, budgets are complicated," said Prescott Balch, a retired technology executive, at the event. "The tech companies don't understand that complexity, and many elected officials don't understand it either, even though they should."
Balch stressed that he's "the furthest thing from anti-technology; I was in the field for 38 years." But he raised the question of financial risks from data center development, many of them "exacerbated by technology industry risks" like the fast pace of innovation and a preference for novelty.
Ed Gorell, treasurer of the Wisconsin Farmers Union, read a policy statement from the union outlining its concerns around data centers and calling for comprehensive revisions to the Wisconsin tax increment financing statute. The union opposes the use of TIF districts to establish data centers, he said.
"The speed and the volume of these developments far outpace peer-reviewed research," said Brittany Keyes, clean air coordinator at Healthy Climate Wisconsin, at the event. "They are delaying coal plant closures. They are building new gas plants. And our progress toward health has stalled."
The U.S. is the biggest market for data centers in the world, with some Midwest states recently joining Virginia, Texas and California among top data center hubs.
Wisconsin Gov. Tony Evers' office did not respond to questions by press time.
