Not a day goes by without a story running in a major newspaper, or a segment airing on CNBC’s Squawk Box, regarding the populist backlash against data centers and voter concern with artificial intelligence (AI). Along with the rising price of oil and gas, it is one of the hottest issues heading into the midterm congressional elections.
State and local elected and appointed government officials have been reacting to public demands to slow down – or outright ban – data center development, with many of these officials having reversed earlier positions of encouraging data center investment in their communities.
At the state level, New York Governor Kathy Hochul (D) instituted the first state-wide ban on data center development in July. Pennsylvania Governor Shapiro (D) changed his tune on a large data center project in his state to a “hell no” after a public backlash to the project. Candidates for political office – both Democrats and Republicans – are hoping to harness the anti-AI, anti-data center as a wedge issue in their campaigns.
Former Ohio Senator Sherrod Brown (D) is making opposition to data center development a key piece of his campaign against Senator John Husted (R). Republican Congressman Tom Tiffany, running for Wisconsin governor, is doing the same against his Democratic opponent, as is Republican senatorial candidate Ken Paxton in Texas.
In the House of Representatives, Republican incumbents nervous about their re-election chances have pushed their leadership to allow a vote on legislation showing they are addressing their concerns. This week, the House is expected to vote on the bipartisan Ratepayer Protection Act, which passed the Energy and Commerce committee by a 52-0 margin. The bill essentially codifies portions of President Trump’s Ratepayer Protection Pledge, an agreement with major AI companies that their data centers would not increase electricity costs to consumers that the White House announced earlier this year. The House bill would require technology companies to cover energy infrastructure costs for data centers.
In the Senate, Finance Committee Ranking Member Ron Wyden (D-OR) released a white paper proposing to eliminate business tax deductions for data centers. These included disallowing 100% bonus depreciation, restricting Opportunity Zone (OZ) investments, changing the treatment of data-center rents under REIT rules, and imposing a federal excise tax on the gross receipts of data centers.
Senator Mark Warner (D-VA) introduced the Data Center Tax Accountability and Disclosure Act (S. 5054) to deny bonus depreciation for property used in a data center unless the data center met certain energy efficiency measures. Senator Josh Hawley (R-MO) has also called for stricter regulation of AI companies and a greater federal role in controlling development of data centers.
President Trump remains a vocal supporter of data center development as necessary for the U.S. to remain competitive with China in the AI race, and for the economic benefits that it provides to local communities. As such, any legislation that negatively impacts data center development will most assuredly face a presidential veto. Administration officials echo this skepticism when it comes to regulating data center development from Washington. At a recent energy summit, Environmental Protection Agency head Lee Zeldin said, “you can’t, across the board, act as if every data center project is equal . . . I’m not going to sit inside of an agency building in Washington, D.C., and say that we know that local community in Georgia or Florida or Arizona or elsewhere, better than everyone there locally.”
As with many populist issues that gain political traction quickly, much opposition arises from rhetoric and misinformation that plays upon voter distrust of their elected officials and their concerns over increased electricity bills, the availability of water, and excessive noise. While data centers require a large amount of electricity and will increase future demand, they are also highly energy efficient.
Between 2010 and 2018, data center workloads increased by 550%, but their energy use increased by only 6%. In various studies and government agency reviews, no evidence was found that high consumption by data centers has shifted utility costs to residential consumers or small businesses.
Most data center water usage is the result of closed-loop cooling systems that reuse the same water and consume only 5-10% of the total water used. Any excessive noise from the operation of data centers can be addressed by increasing setbacks or implementing noise dampening technology.
The Commercial Real Estate Development Association (CREDA) has been meeting for much of the year with members of Congress and staff to rebut much of the misinformation on data centers, stress the importance of local control, and emphasize the need to respond to the growing public demand for AI services. Fortunately, most elected officials intuitively understand the critical need for the continued development of data centers as both a national security issue, and as the inevitable response to the demands of a modern economy. But in the heat of an election season, few legislators will want to go out on a limb to contradict their constituents before the votes are counted.
Post-election, the challenge for CREDA, its chapter network, and its individual members will be to work with elected officials at the federal, state and local levels as they consider public policy approaches to data center development, and ensure that reasoned, balance and workable approaches are the result.
