The use of a Missouri economic development tool has gained momentum as municipalities and counties approve billions in taxable industrial revenue bonds that enable tax breaks for tech giants' data centers.
The use of Chapter 100 bonds has raised questions about whether the IRBs are an appropriate financing mechanism for data centers.
Chapter 100 bonds, named for the Missouri statute that governs them, are not traditional munis. Local governments can use Chapter 100 IRBs to finance commercial or industrial projects — such as plants, warehouses, and equipment — and as a vehicle to grant companies property tax abatements and sales tax exemptions.
Some market participants worry about these types of economic development transactions, said Jeff Lipton, market intelligence analyst at The Bond Buyer, raising the concern that small municipalities and counties are using unconventional, complex financial tools in partnership with secretive tech giants.
"The municipal market must question the level of sophistication needed to fully comprehend this type of financing vehicle and all of the risks associated with data centers, including water/power grid constraints, technological obsolescence & AI architecture shifts, cybersecurity vulnerabilities and shifting regional demographics," Lipton said.
In Independence, Missouri, for example, city council officials approved $150.6 billion of Chapter 100 IRBs as a statewide incentive for Nebius, a Dutch artificial intelligence infrastructure company, to build a data center in the city.
The deal includes a roughly 90% personal property tax abatement and a 98% real property tax abatement, according to
"This is a giant tax break with very little accountability, very little engagement of communities that are going to bear the consequences of this particular project," said Kasia Tarczynska, a senior research analyst at Good Jobs First.
It's unclear how much support and help these municipalities and counties across the country get from state governments, especially when dealing with extremely complicated financial tools, she said, calling it "worrisome."
These transactions are not muni bonds in the traditional sense of being tools to raise capital but rather a tax abatement deal.
Some states, including Missouri, use this process because their primary method for tax abatement is municipal ownership of a project, and then they lease it back to a private company, making it a municipal project by virtue of a bond issuance.
Sherae Honeycutt, public information officer for the city, said by email that the IRBs are "a conduit-style issuance where the city is only responsible for bond payments from lease revenues received from the lease of certain property."
Those lease payments are made by the company that buys the bonds. The city does not pledge taxing authority, general revenues or full faith and credit to repay the bonds and does not assume any debt, she said.
Montgomery County, Missouri, has also approved massive taxable Chapter 100 IRBs. The county's IRBs will support multibillion-dollar hyperscale data center campuses for
County Commissioner Ryan Poston said the Google deal was set up to give the county a better outcome than what was already available,
Under the deal, Google pays 100% of real property taxes in exchange for a 70% abatement on personal property taxes, the news outlet said.
"You give a little over here to gain a lot over here," Poston told KOMU 8, "and that's what most people are not realizing."
Missouri is not the only state where IRBs function as tax abatement vehicles.
New Mexico's
In 2023, the Georgia Supreme Court
The Missouri IRBs raise questions about whether local issuers' economic development frameworks are keeping pace with data center financing trends.
"What we have here is essentially a structure that's designed to unlock the property tax abatement and the sales tax abatement. Missouri law, through a variety of different quirks, requires that the only way you can do that is if you do that through a 'bond,'" said Justin Marlowe, research professor at the University of Chicago's Harris School and Director of the Center for Municipal Finance.
The Independence IRBs, for instance, "highlight the central issue with so much of what we're seeing in data centers… which is that the architecture that we have as state and local governments to govern these kinds of arrangements is really based on a 19th-century economic development model," he said.
Marlowe noted that Chapter 100 IRBs are essentially "a private entity making a loan to itself," passing it through the local government to secure a tax abatement. Missouri law limits local governments' ability to grant such abatements, he said.
The state limits prevent a race to the bottom as local governments chase economic development opportunities, he said, but "then (people) come up with all sorts of creative workarounds, and this is exactly that."
Some advocate removing state limitations on such tax abatements, Marlowe said, to eliminate the municipal-bond pretense and allow them to be offered outright.
"From the municipal bond market's perspective, we like to deal in tangible benefits and real measurable cash flows, and data centers operate with a very different set of underlying economics," he said. "Some would argue that would mean the municipal market is really not a good instrument to be financing these kinds of deals."
McKinsey has put the cost of the AI buildout at $7 trillion by 2030, and KBRA estimates that half of the financing for that will come from free cash flow, Van Hesser, KBRA senior managing director and chief markets strategist, said in a July 15 webinar. The debt portion of data center financing "is going to come really in all of the forms imaginable," he said.
In the July webinar, KBRA Managing Director Fred Perreten said most of the $160 billion in debt that KBRA has rated since the first quarter of 2025 has been in the private markets, but "more recently, it's starting to make its way to the 144A public markets." 144A bonds are private placement securities sold to qualified institutional buyers and "sophisticated" investors.
While many deals are currently happening in project finance, "our expectation is, over the next few years, you actually start to see these financed more broadly in other markets," he said in the webinar.
"The size of these deals has gotten so large that they need to really access all pockets of capital," said Andrew Giudici, KBRA global head of corporate, project and infrastructure finance, during the webinar. "These companies, probably some of them will be cash flow negative in the next year or two, just because of the amount of capex that they're investing."
Marlowe said he expects data centers to play a bigger role in the municipal market.
"It seems inevitable that this will be something the municipal market has to contend with, if not directly in the form of borrowing specifically for the data centers themselves, then for all of the surrounding infrastructure," he said.
There are several ways muni bonds could help fill the data center financing gap, Morgan Stanley strategists said in a March report, but noted the likelihood and feasibility of data centers electing to build data centers through IRBs as "very low."
The idea behind IRBs or private activity bonds was that there would be measurable economic development benefits, Marlowe said, but "the data center question gets really interesting because it doesn't necessarily have all of those same kinds of benefits."
In a
In places with clusters of data centers, such as northwestern Missouri, where Independence sits, data-center-related economic growth tends to be stronger, according to a Barclays report.
Easy access to non-renewable power often determines data center siting decisions, and
Data centers can bring tax revenue if significant abatements are not granted, but they have drawn criticism for the massive amounts of water and power they require, as well as for potentially reversing gains in clean energy.
In Independence, many residents of the Kansas City suburb of 120,000 oppose the data center, objecting to the massive tax breaks granted by the city council, potential strain on local resources such as water and power and the denial of a public vote on the agreement,
Citizens have founded opposition groups and
Two city councilmembers who voted in favor of the data center
In July, the city council approved a
Steve Jeffery of Jeffery Law Group, who represents Independence Guard Alliance, a local data center opposition group that
In Montgomery County, both the Google and Amazon projects have faced strong opposition from residents, who argue that these multi-billion-dollar paper-bond deals bypass public votes, lack transparency, and strain local resources, news reports say.
A citizens group named Preserve Montgomery County LLC
The suit alleges county commissioners violated Missouri's Sunshine Law and failed to properly notify taxpayers regarding the data center project.
