The demand for data has been a driving factor for the U.S. economy, but data centers' proliferation — with their power and water usage — might not be sustainable.
As data centers continue to sprout up across the country, some states and cities worry about the impact they will have on citizens and finances and, as a result, are considering implementing moratoriums to give themselves time to properly regulate these facilities.
At least 11 states have considered or are considering moratoriums, according to the National Conference of State Legislatures.
Recently, New York State Sen. Kristen Gonzalez introduced the Responsible Data Center Development Act, which was passed by the Legislature, attempts to address environmental, economic and communal impacts of data centers and implements a one-year moratorium. If signed by the governor, this would be the nation's first statewide moratorium on data centers, according to a press release from the senator.
Bloomberg Intelligence Litigation Analyst Justin Teresi wrote New York is 70% likely to enact data center rules, "given growing public support for restrictions on data centers."
Enactment will likely "influence other states grappling with data-center development issues," he said.
Growing concern about data centers were triggered by "these facilities coming in without any fact-finding or any control," said New York State Assemblymember MaryJane Shimsky.
Earlier this year, a proposed statewide moratorium in Maine passed both chambers of the Legislature, however, the governor vetoed the bill.
Cities have had better luck passing moratoriums.
Lysander, New York, enacted a six-month moratorium on data centers after receiving negative feedback from the community.
Outside of the Northeast,
Texas seems to lead the charge after reports of a projected $1 billion-plus loss in annual sales tax revenue from exemptions afforded to data centers, according to a 2025 report from the Texas Comptroller's Office.
It's getting harder for officials to ignore the potential downsides of these facilities, analysts said.
The amount of water and electricity that data centers and related projects consume could overwhelm existing infrastructure, critics said.
"Substantially increased water and electricity demands can strain existing infrastructure and require the build-out of new capacity," Moody's Ratings Vice President and senior analyst David Strungis said.
If those costs are "not mitigated with new revenues and new economic development," the city or state would have to fund the difference, which would negatively impact their credit, he said.
For some muni market participants, increased utility costs appear to be more of a concern for cities than credit risks.
"The one thing that you would see is potentially more infrastructure needs, meaning costs would increase," AllianceBernstein Municipal Bond Portfolio Manager Daryl Clements said. "But I wouldn't necessarily say that there would be a credit risk at this point."
Bond Buyer Intelligence Analyst Jeff Lipton believes the impact will depend on the state or city's finances, with economically diverse states better suited to absorb potential losses.
"Certain states may decide to commit significant resources as an inducement to attract data center investment," he said. "The return on investment may not fully materialize, leaving these states with a lost opportunity cost."
Furthermore, the economic benefit these data centers provide may be only temporary, leading to short-term revenue that does not outweigh long-term costs.
"Local governments must be mindful that although data center growth can create construction employment opportunities, such jobs tend to be transitory," Lipton said. "Thus, the impact upon tax revenue receipts may be short-lived."
States that offered tax incentives hoping to reap substantial revenue, have often been disappointed.
"Virginia lost more than $1 billion a year on these tax incentives between 2023 and 2025 and another $1.6 billion in tax revenue in 2025," according to a Moody's Ratings report. "The state is now considering repealing its tax breaks for data centers."
Municipalities are also taking public pushback into account when assessing the future of data centers.
S&P's 451Research Group reports that since 2024, 120 data center projects have been canceled, with the majority of those taking place last year and this year.
"They're only getting worse, and the bulk of them … are due to local opposition," said Kelly Morgan, head of S&P Global's 451Research data center team.
Much of the public outcry regarding data centers resulted from their emission of environmental pollutants and suspected increases in water and electricity prices, analysts said at an S&P Global media roundtable.
"Overall, the single biggest concern over the broadest range of folks is what might happen to utility costs," Assemblymember Shimsky said. "Most of our utilities are the highest or very close to the highest-charging utilities in the entire country."
The Data Center Coalition (DCC) has challenged this narrative. In a May press release, it asserted there is "no historical evidence that data centers are driving increases in residential electricity costs under existing rate structures."
The organization cited a report funded by the DCC and authored by Energy + Environmental Economics (E3) , which found many factors contributed to rising utility costs, including inflation, natural gas price volatility, resilience spending, grid modernization and other factors.
However, E3 concluded the relationship between data centers and the increase in electricity costs is "unclear."
"This is an industry that is committed to being a responsible neighbor in the communities where they develop," said DCC Vice President of State Policy Dan Diorio.
"It's fair to say that data center demand is outpacing current grid supply," he noted, but added, "there haven't been investments in the grid and new generation for about 20 years."
Maintenance and upgrade needs, Diorio said, are the biggest drivers of residential utility bills.
"We expect that utilities are giving us a bill that reflects our full cost of service, that no other ratepayer is paying for costs that are directly assigned to us," he said.
Diorio fears the moratoriums will become bans.
"What I worry about is that it's going to be permanent in effect," he said. "It creates a lot of uncertainty for putting potentially billions of dollars of steel in the ground investment into a community, because you don't have any assurances that the moratorium will actually lift and that they won't just look to extend it."
In an effort to combat pushback, developers have looked into creating their own power and cooling plants to accompany their projects; however, this idea faces its own obstacles.
Most data centers are powered by natural gas, "which is also maybe not that appealing to the locals," S&P's Morgan said.
The future of data center regulation is uncertain. Some municipalities are "aggressively pursuing this development" while others want to pump the brakes. With no uniform way forward, efforts to regulate just seem like "patchwork," Moody's Strungis said.
