States are offering financial incentives to attract data centers while some lawmakers push back over power and environmental concerns.

The explosive growth of data centers needed to power America's demand for artificial intelligence and cloud computing has spurred states to compete fiercely for projects through financial incentives, though the competition has also drawn pushback from lawmakers and communities. Activity in state legislatures has been brisk in recent months amid an intensifying buildout of energy-hungry facilities sparked by the late 2022 debut of OpenAI's ChatGPT. While many states are offering financial incentives worth tens of millions of dollars, these have frequently generated debate over data center needs: large tracts of land, tax breaks, and huge volumes of electricity and water. Data center requirements are expanding dramatically, from dozens of megawatts to hundreds of megawatts and from dozens of acres up to hundreds of acres for large-scale hyperscalers.

Tax exemptions on goods for data center construction and equipment have become widespread, now present in about three dozen states and viewed as essential for competition. Kansas approved a new sales tax exemption, while Kentucky and Arkansas expanded pre-existing exemptions to qualify more projects. Michigan approved an exemption with protections including requirements to use municipal utility water and clean energy, meet energy-efficiency measures, and ensure the facility pays for its own electricity. Andy Cvengros, who leads the data center practice at commercial real estate firm JLL, stated: "It's often a nonstarter if you don't have them, for at least the hyperscalers. It's just such a massive impact on the overall spend of the data center."

Several states have pursued more aggressive approaches. West Virginia approved legislation to create "microgrid" districts free from local zoning and electric rate regulations where data centers can procure power from standalone power plants, with Gov. Patrick Morrisey calling it his "landmark policy proposal" for 2025. Utah and Oklahoma passed laws making it easier for data center developers to procure their own power supply without using the grid, while Mississippi rolled out tens of millions of dollars in incentives to land a pair of Amazon data centers. In South Carolina, Gov. Henry McMaster signed legislation that eased regulations to speed up power plant construction to meet data center demand, including a massive Facebook facility.

Pennsylvania is writing legislation to fast-track data center permitting, viewed as an up-and-coming destination but potentially missing billions in investment landing elsewhere. State Rep. Eric Nelson noted: "Pennsylvania has companies that are interested, we have a labor force that is capable and we have a lot of water and natural gas. That's the winning combination. We just have a bureaucratic process that won't open its doors."

However, opposition has emerged in regions experiencing significant data center development. In South Carolina, some lawmakers expressed concerns about data centers using disproportionate amounts of water and forcing regular ratepayers to finance power plants, with Senate Majority Leader Shane Massey stating: "I do not like that we're making customers pay for two power plants when they only need one." Lawmakers in Oregon are advancing legislation requiring utility regulators to ensure data centers pay for necessary power plants and power lines, while Georgia is debating similar measures. In Virginia, the most heavily developed data center zone in the U.S., Gov. Glenn Youngkin vetoed a bill requiring increased disclosures from data center developers about noise pollution and water use. Texas, which endured a deadly winter blackout in 2021, is wrestling with how to protect its electric grid from fast-growing data center demand.