Randy Knaack grew up on a farm in Menomonie, Wis., about an hour east of the Twin Cities. He runs a small advertising business printing signs and T-shirts there, and has served as Menomonie’s mayor for the last 16 years. Last summer, a landowner from a neighboring town asked the Menomonie City Council to annex a 320-acre piece of farmland, about a mile down the road from the farm where Knaack grew up, and zone it for industrial use. Residents soon caught wind that a mysterious company called Balloonist LLC was planning to redevelop the land as a data center.
Incensed neighbors assembled a petition to stop the project, raising concerns about the drain on environmental resources, impacts on the area’s “rural heritage,” and the potential strain on taxpayers through public subsidies. “Menomonie’s land, water and future belong to the people, not to hidden investors or distant shareholders,” the petition said.
Despite the outspoken opposition from some residents, the City Council went for it by a vote of 8-3 — too great a majority for Knaack to veto. The rezoning paved the way for Balloonist to purchase and redevelop the land. “The community came unwound,” Knaack says. “I became quite stressed out on it. I don’t think I slept any nights. How do we stop this? How do we manage it? How do we make it better for ourselves? What do we have to do next?”
Knaack’s conundrum has become increasingly common for state and local officials as data center projects have exploded in size and number over the last year. The facilities, blank-faced warehouses full of servers, are popping up all over the country, driven by the growth of artificial intelligence as well as everyday computing applications. The Trump administration, and the Biden administration before it, sought to fast-track permitting of data centers as part of a global race for AI supremacy. According to JLL, a commercial real estate research firm, data center capacity could double globally by 2030. The business consulting firm McKinsey estimates $7 trillion in spending on data center infrastructure by 2030, with 40 percent of the investment occurring in the U.S.
With minimal activity or traffic once they’re built, the centers have proven to be easy money for some of the places where they’re concentrated. Loudoun County, Va., which has the highest concentration of data centers in the country, gets 38 percent of its revenue from the centers every year. As a result, many officials are scrambling to attract the projects. At least 37 states offer some type of tax incentive for data centers, with several more joining the pack last year.
David Kidd
The meteoric growth of the centers has sparked a flurry of state and local policy initiatives, ranging from sales and property tax exemptions to transparency measures, job requirements, rules on how data center developers connect to the power grid, and outright moratoriums on new data centers at the local level.
In Menomonie, Knaack decided to stand in the way of the Balloonist project (which lawyers later told him was connected to one of the “big 5” tech companies: Google, Amazon, Meta, Apple or Microsoft). He directed the city not to negotiate a development agreement, not to prepare a tax increment financing plan — in fact to halt all communication with the developers.
“I said, hold on, we need to get our feet under us before we do any negotiation,” Knaack says. “Before this thing goes any farther at all.”
At the same time that Knaack was mulling what to do in Menonomie, the Wisconsin state Legislature was developing a series of bills setting ground rules for data center development there. Like many other states, Wisconsin waives sales and use taxes on the purchase of servers, cables and other equipment used in their operation. In November, Wisconsin state Sen. Jodi Habush Sinykin, a Democrat, introduced the Data Center Accountability Bill that would establish prevailing wage requirements for data center jobs and require data centers to get at least 70 percent of their electricity from renewable sources. A $15 billion data center led by OpenAI and Oracle broke ground in her district last December.
Like other lawmakers, Sinykin, an environmental lawyer, has scrambled to educate herself about data centers’ economic and environmental impact over the last year. At one point in the fall, she says, she and her colleagues were passing around 11 different drafts of the legislation. “[The bill] is very much intended as a starting place,” Sinykin says. “In Wisconsin, like many other states, it’s the wild west. We have zero regulations on the books governing data centers other than [tax incentives]. We need to establish important guardrails.”
While Wisconsin Senate Democrats were working on their bill, Republicans in the state Assembly were developing legislation of their own. Some of the aims overlap. The GOP bill includes provisions requiring “closed-loop” water systems that are meant to prevent a major drain on water supply, along with public disclosure of total water usage. Republican backers of the bill, including Assembly Speaker Robin Vos, acknowledged residents’ concerns about the “land, water and power” implications of the data center boom.
States across the country are also trying to protect ratepayers from having to take on the cost of data centers’ energy use. It’s hard to account for how much of the increase in utility costs can be attributed directly to new data centers, and one study suggests new data centers have tended to lower retail utility costs. But it’s clear that data centers increase the need for new transmission infrastructure, and utilities typically spread the costs of those investments among all their ratepayers. The Wisconsin GOP bill includes a provision directing the state’s Public Service Commission to ensure costs associated with the data center are not foisted onto other customers.
A Republican-backed bill in Oklahoma mirrors the Wisconsin legislation, with provisions requiring data centers to pay all the costs associated with their energy demand. The New Jersey state Legislature has also advanced a bill that would charge tariffs to large data centers to offset the cost of the strain they put on the power grid, while incentivizing them to improve their energy efficiency. New York Gov. Kathy Hochul has backed a plan to force data centers to pay more for electricity or supply their own energy. Virginia’s new governor, Democrat Abigail Spanberger, has said data centers should “pay their own way,” and the Trump administration has pushed to have data center operators cover the costs of their own energy needs as well.
Still, for some legislators, all these guardrails simply aren’t sufficient — or at least they aren’t coming quickly enough, as new data centers keep popping up all over the country. Lawmakers in Georgia, Oklahoma and Maryland are considering measures that would put a complete moratorium on new data centers, ostensibly granting localities more time to enact rules around their construction.
Virginia is already ground zero for the data center boom, home to the so-called “Data Center Alley” in Loudoun County. The county has around 200 data centers, with some dating back to the late 1990s. The county never passed any special incentives to promote data center growth, but until 2014, the facilities were considered a typical office use permitted by right in commercially zoned areas. In recent years, the county has defined data centers as an industrial use and moved to regulate where and how they’re built. But they’ve been an undisputed financial boon for Loudoun.
“It’s all financial upside,” says Phyllis Randall, chair of the Loudoun County Board of Supervisors, of the data center boom. “It’s allowed us to lower our tax rate year over year over year. … It’s allowed us to do more parks, more affordable housing. It’s allowed us to do more in our school system. [The data centers] have absolutely done their job financially.”
That dynamic is what’s made so many localities itch for a piece of the action. Even in places that offer generous tax breaks, officials note that data centers still add to their tax base. One of the biggest data centers in the world is under construction in Storey County, Nev., in a special industrial park that also hosts advanced manufacturing and tech companies. Many taxes are waived within the park, but its creation helped save the county from financial ruin a generation ago, says Austin Osborne, the county manager. Relative to other uses there, the data centers place little strain on the county infrastructure in terms of traffic and other needs.
“There is a positive tax flow into our state, into the schools, into the county,” Osborne says.
Still, by other measures, tax incentives for data centers are costing states millions. Good Jobs First, a nonprofit that tracks corporate subsidies, has estimated that 10 states give up more than $100 million per year each to data center tax breaks, with Texas losing around $1 billion in fiscal year 2025. And part of the reason data centers don’t add much traffic congestion is because they don’t employ many people. Estimates on the average number of full-time workers per data center range from as few as 10 to around 100. The Data Center Coalition, an industry group, estimates that data centers “support” around 4.7 million jobs, directly and indirectly, as of 2023. Facing increased skepticism from the public and from lawmakers, some tech companies have launched public relations campaigns to promote the economic benefits of data center growth.
“I wouldn’t say there’s a straight partisan split on the issue,” says Minnesota state Rep. Athena Hollins, a progressive Democrat who voted against a bipartisan bill that passed last year with both incentives and regulations on data centers. Hollins opposed the bill even though it was supported by some groups she allies with, like organized labor, because she says she couldn’t support tax breaks for companies that send more profit to billionaires. “Of all the folks in the world who would come to Minnesota who I think absolutely should be contributing to our tax base … it is these huge corporations,” she says.
Some localities, like New Orleans, are looking to ban data centers altogether. Madison, Wis., passed a one-year moratorium on data center construction.
In Loudoun County, the newest data centers are quieter, more attractive and use much less water than the earliest ones that were built there, Randall says. Still, residents are sick of them. Randall used to disarm data center opponents by telling them how much the growth of the centers lowered their tax bills, boasting that the county has the lowest tax rate in the Washington, D.C., metro area. “Now I say that and they say, ‘I don’t care,’” she says.
In Menomonie, Knaack’s decision to stop communicating with the data center company didn’t have the immediate impact he hoped for. Just four days after he stopped talking with Balloonist LLC, the company went ahead and bought the land. “Now I’m thinking, ‘oh my gosh, now it is too late,’” Knaack says. But he reached out to lawyers all over the country. One told him that his best bet was to rezone the property and add new parameters specifically for data centers. In January, the City Council in Menomonie voted unanimously to create a new Data Center Industrial District. Knaack says the move means that if Balloonist LLC wants to move forward with the project, it will need to request a rezoning, triggering a public hearing on the proposal. He hopes that will give the community more leverage over how the project is developed, or, if nothing else, at least more transparency about what it will entail.
“What caught us off guard, what caught everybody off guard, is how fast this moved through the channels,” Knaack says. “When the community speaks out about a topic, it’s important that the leadership, the governing body, the mayor, the administrator — they need to listen to the public. It was a lot of work to backtrack this and bring it full circle.”
