As public sentiment shifts on Illinois data centers, a new report warns local governments against lopsided contract terms with secretive and sophisticated developers.
Data centers pose some risks for local governments, and their long-term credit impact hinges on the financial arrangements local governments hammer out with developers, S&P Global Ratings said in a March 24 report.
It will be crucial for local governments to access information on data centers' projected and historical electricity and water use, S&P said, as well as developers' infrastructure needs, financial contracts and counterparties and business risks.
The U.S. will see a 10% to 20% spike in peak electricity demand by 2035, according to S&P Global Market Intelligence. As utility capacity comes under strain, utilities will need to build out further, and those costs are often borne by ratepayers.
Already, S&P noted, national average retail electric rates have outpaced the Consumer Price Index, rising 32% over a five-year period compared with 16% for CPI.
"Our 2026 outlook on U.S. public power and electric cooperatives remains negative, largely due to rising costs and affordability concerns for ratepayers and diminishing margins for systems," S&P said in the report.
"We were getting a lot of questions, both internally and externally, about how we were thinking about this," said Sarah Sullivant, managing director and sector lead for public finance credit ratings at S&P. "It's come up in a couple of issuer contexts."
Sullivant said there are different risk profiles for hyperscalers versus non-hyperscale data centers and leased versus owned data centers.
"Increasingly, what we're seeing is that hyperscalers are actually leasing these so that they can easily get out of them when their business needs change," she said. "And those lease risks are potentially things that are going to affect the revenue stream to local governments."
The report notes that data centers for short-term training of artificial intelligence models are often built in remote places where land and power are more affordable. But those data centers are more likely to lose value at the end of their initial depreciation period if they can't be repurposed into inference or cloud computing facilities, and the latter types of facilities "typically require proximity to urban centers," S&P said.
The risk for local governments of concentrated revenues "in this particular sector at this particular time is potentially more volatile than other sectors," Sullivant said.
There are also indirect risks from the amount of leverage that data center tenants are taking on, which S&P discussed in a Jan. 21 report on AI investment risks.
"This industry and sector is at an inflection point," Sullivant said. "There's so little transparency, there's so much private capital out there that we think that the systemic risks are building."
A political backlash to data centers is also building. There are at least 1,952 active data centers in the U.S., with 2,970 more announced, according to data from
But 391 data centers had been rejected or withdrawn as of March 2, according to Aterio; 71 facilities were delayed and 18 facilities were canceled in the construction phase.
In Illinois, which along with Ohio has the most data centers in the Midwest, Gov. JB Pritzker has proposed a two-year suspension of state tax incentives for data center development that would take effect July 1. The plan requires the legislature's approval.
"I do not want to add data centers that are not paying their fair share," Pritzker said on Feb. 9 at an event in Granite City.
"If they do threaten to raise rates, we've got to slow them down... And we're going to be looking at that in the legislature this spring," he said, according to a transcript shared by his office.
There are at least two bills wending through the General Assembly that address data centers. One,
Another,
Lawmakers are seeing data centers impact utility bills for retail customers, and the projects are "massive users of water," said Sen. Ram Villivalam, D-Chicago, the bill's sponsor. "We need more transparency for the communities that those data centers are (located) in," as well as environmental protections, he said.
At least 27 data centers have received $983 million in tax incentives since Illinois began providing the incentives in 2019, according to
PJM Interconnection, a regional transmission organization that serves northern Illinois, said in December that its 2027-28 capacity auction had yielded a 23.5% increase over 2025-26 prices. It passes those cost hikes on to customers, according to
On March 20, the Illinois Commerce Commission announced plans to open an investigation into how investor-owned ComEd — the state's top electric utility, which operates in the PJM market — balances issues and cost risks tied to data centers. The investigation, which will launch by April 23, will look at a potential separate tariff structure for data centers and proper cost allocation of infrastructure tied to data center projects.
"ComEd is reviewing the modifications to the ICC's order to determine next steps," a ComEd spokesperson said by email.
The Illinois Clean Jobs Coalition was "heartened" by the ICC decision, said Hannah Flath, director of communications for the Illinois Environmental Council.
The ICJC is also calling for two steps from the commission: a mechanism to ensure that data centers pay for their transmission and distribution infrastructure costs; and a system that rewards data centers with fast-track interconnection for bringing their own clean energy and grid solutions to the table, Flath said by email.
"We are increasingly fortified by the clear messages we're hearing in town halls across the state that communities don't feel like they're getting a fair shake from Big Tech and that action is urgently needed to hold them accountable," she said.
One example of community backlash came in Sangamon County, Illinois, where the county board recently tabled a data center zoning permit measure on a 15 to 13 vote.
The meeting in Springfield drew hundreds of residents, with most of the public comments opposed, according to the
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"CyrusOne remains committed to this project and will continue to engage with local officials and the community to address questions," a CyrusOne spokesperson said by email, adding that it does not disclose the identities of its data center tenants.
The data center operator also has a location in Aurora, where the city council last week approved new rules around data center noise, emissions, water and energy use and biometric data.
Aurora, about 40 miles west of Chicago, already has four to five data centers, depending on how you categorize them, said Alison Lindburg, the city's director of sustainability. It has five more in development, three of which managed to get in under the wire before a September 180-day moratorium and the new rules kicked in.
"It all came to a head because we had a number of data centers all coming here at once wanting to develop, and Aurora didn't even have a definition in our zoning ordinance for a data center," she said. "We were treating them as warehouses, and we basically needed to put a pause in place so city staff could figure out if we needed to make any changes to our regulations, which we ultimately did."
The data centers are now conditional use and require city council approval.
The sentiment from residents in the council room last week "was fairly hostile" toward data centers, she said.
"We've certainly had some that have caused some issues with the neighbors," Lindburg said. "We are hearing a lot of concerns related to noise; some of that is experienced noise and also experienced vibrations. We've had some people say that they've noticed cracks in their foundations." The city is currently in litigation with one of the existing data centers over an alleged violation of noise rules.
Locals have also voiced concerns about water supply — with one of the city's data centers using evaporative cooling, which draws more water than closed-loop cooling — and the decreasing water table in the area, as well as pollution from the data centers' diesel generators.
Newer projects will be required to do a noise study, a water study and a water plan as well as an energy plan, and to provide renewable energy or battery storage.
In some communities, public opposition has not yielded results. In Joliet, 23 miles southeast of Aurora, the city council approved plans for a new hyperscale data center on March 19 despite hours of public comment that delayed the vote. The project would become the largest data center in the state,
"I wish Joliet would have pushed back a little bit if they were going to pass this," state Sen. Rachel Ventura, a Democrat whose 43rd district includes Joliet, told The Bond Buyer. "I would have had more negotiation."
Ventura said the call for more transparency and fairer negotiations in the S&P report makes sense. One frustration is the frequent use of nondisclosure agreements, so it becomes hard to get information about the proposed data centers, "especially when it comes to water and energy use," she said.
"I think part of the issue is, cities don't know what to ask for," she said. "This is novel, in a sense, and if you can't look to see, well, what did Virginia do? What did different communities do?, then how do they know what to ask for?"
Joliet is in the midst of a transition from an aquifer that is running dry to an arrangement that would
"The pipeline is meant to replace the water for not just Joliet, but surrounding communities as well," Ventura said. "However, there are communities who will still be using the ground aquifer to provide water for their communities."
The proposed data center will begin pulling water from the ground aquifer in 2028, Ventura said. And even in 2030, when the Lake Michigan water starts coming through the pipeline, "both the aquifer water and the pipeline water are really for people to be able to drink, and flush the toilets, and things like that, and not necessarily for these large uses," she said.
Joliet City Manager Beth Beatty said by email that the data center is projected to generate $310 million in property tax revenue over 30 years, in addition to utility taxes.
Joliet did not offer any economic incentives or tax abatements, she said. The city did sign a confidentiality agreement with the developer during early discussions.
"ComEd has identified and planned a series of transmission and system upgrades that will allow the data center to operate," Beatty said, adding that the developer has pledged to fund improvement costs tied to the project.
Ventura had asked Joliet to hold off on its vote until the POWER Act passed the General Assembly, she said, noting she senses more public pressure coming to bear now.
"I definitely think there's a lot more awareness of the harms the data centers can bring to our communities, and so more and more constituents are paying attention," she said.
