That’s Aubree Derksen of Pine Island, Minn., testifying before a legislative committee about a proposed data center in her community. City officials there knew about the project for two years before residents were let in on the secret, thanks to nondisclosure agreements (NDAs) the officials had signed. Even a local state legislator was left out of the loop until the day before the project was formally announced. “The guy from Xcel Energy came into my office and said, it's going to be Google, and it's going to be us,” said Sen. Steve Drazkowski.
This situation has become all too common across the country: Big tech firms that are rapidly building data centers to power their artificial intelligence models use nondisclosure agreements to bind elected officials and economic development administrators, preventing them from divulging key information about a proposed data center to local residents before it’s too late for the project to receive the appropriate scrutiny. These agreements often cover key information, including the identity of the data center’s owner, as well as how much water or power it will use, making an objective assessment of the project’s potential impact on the local community functionally impossible.
NDAs are not unique to data center development, of course, but have become particularly abusive in that industry, springing potentially harmful projects on communities across the country as tech firms expend nearly limitless resources in pursuit of AI profits. As my organization detailed last year, data centers can be extremely extractive, collecting massive tax subsidies, driving up utility costs, creating few permanent jobs and little economic activity, and displacing more productive economic development projects.
Fortunately, state legislators have become aware of the problem: In at least 10 states this year — Arizona, Georgia, Maryland, Michigan, Minnesota, New Jersey, New York, Oklahoma, Ohio and Wisconsin — lawmakers have proposed either banning economic development-related NDAs entirely, banning them specifically for data center projects, or limiting the information they can conceal to ensure that key details such as potential power or water use will be publicly disclosed. Michigan state Sen. Mallory McMorrow has also proposed a federal ban as part of her campaign for the U.S. Senate.
Several of the state bills have advanced out of committee, including on bipartisan votes in Minnesota and Wisconsin, showing that transparency around data center development is not a partisan issue but one rooted in the belief that local communities’ residents should have a say in their own economic fate.
All these states were actually beaten to the punch by Pima County, Ariz., which after a data center controversy enshrined new rules last year limiting both the duration of nondisclosure agreements and the information they can cover, ensuring that the amount of power and water a proposed data center will use cannot be shielded from the public.
Corporate leaders and site selection consultants argue that NDAs are a normal and necessary part of the economic development process. But that’s simply false. There is nothing normal about requiring elected officials and public servants to withhold significant amounts of information from their constituents, even if directly asked. Voters understand that this practice is corrupt and should be banned.
In fact, taxpayers and local communities benefit from transparency in economic development: If multiple companies are bidding on the same location, the odds that the public receives a better deal go up. It is only company CEOs who benefit from a closed, private process in which they hold all the information, while the public, and even elected officials themselves, are operating in the dark and can be played off against each other.
Broad nondisclosure agreements are also not required to protect proprietary information or trade secrets, which can be safely covered by much narrower contracts. No zoning board, planning commission or everyday citizen needs or will ask for the tech equivalent of the formula for New Coke or the ingredients of a Whopper’s special sauce when assessing a particular economic development proposal, anyway, so the point is almost moot.
If an economic development deal is as beneficial for the local community as proponents generally claim it will be, public officials and business leaders should be not just willing to discuss it publicly but eager to do so, so they can sell those benefits to the community and receive local buy-in. Instead, they rely on NDAs because they know that public input means they’ll have to defend, in the open, the often-too-generous economic development packages they give and receive, as well as the unfair utility deals and other regulatory favors that are on the table.
Pat Garofalo is the director of state and local policy at the American Economic Liberties Project.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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