Dissatisfaction with the ever-increasing number of server farms accompanying the AI boom is exploding across the United States. The outrage has grown so loud that the legislative agenda is beginning to change. Some states and local communities are considering temporary bans on new data center development altogether. Earlier this month, New York state joined the club with a bold new proposal to block local cloud construction.
A new bill in New York state would provide a three-year moratorium on new permits for data center construction across the state, giving local regulators an opportunity to examine the industry’s environmental and economic impact on local communities. The bill’s co-authors, state Sen. Liz Krueger and Rep. Anna Keres, called it the “strongest” bill ever introduced in the country.
So far, no statewide ban has gone into effect, but local bans are spreading quickly. Weeks before Mr. Krueger and Mr. Keles introduced their bill, the New Orleans City Council passed a moratorium that would halt all new data center construction in the city for one year. Madison, Wisconsin, passed a similar law in early January after protests erupted over local technology projects.
Similar policies have been passed in large numbers of communities in construction-heavy states like Georgia and Michigan and in many other parts of the country.
Environmentalists have long targeted data centers, but the latest concerns come from government officials amid populist anger against the tech industry in general. In the conservative state of Florida, for example, Gov. Ron DeSantis recently announced an AI “bill of rights” that would give local communities the right to restrict the construction of new data centers.
In liberal Vermont, U.S. Sen. Bernie Sanders has proposed a nationwide moratorium. And in Arizona, where the political environment is decidedly more complex, Gov. Katie Hobbs recently said she supports rescinding tax incentives for the industry. The topic has also sparked a battle among politicians, with Mississippi’s governor attacking Sanders online over his suspension proposal.
Political resistance is occurring just as technology companies are spending more and more money on infrastructure. The big four spenders – Amazon, Google, Meta, and Microsoft – are planning massive $650 billion in capital spending over the next year, the bulk of which will go toward building data centers. Even more spending is planned in the coming years as companies race to secure as much computing power as possible.
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But the speed and scale of these projects has made them increasingly unpopular, according to recent polls. A recent Echelon Insights poll found that 46% of respondents oppose plans to build data centers in the region, while 35% support them. Another Politico poll found that while there was considerable concern about the facility, many voters had little opinion in either direction, and that public sentiment could sway in either direction.
The industry is already spending millions trying to change those numbers, at least in key regions. In January, the Financial Times reported that some of the industry’s biggest data center operators were planning a “lobbying blitz” with plans to “increase spending on targeted advertising and engagement” with the communities they build.
Tech companies have also made substantial concessions, including ratepayer protection pledges that would make them responsible for powering new AI data centers. But it is not clear whether these measures will be enough to draw people back.
In a conversation with TechCrunch, Dan Diorio of the Data Center Coalition argued that data centers should appeal to small communities because they bring in revenue without taxing their limited resources. If incentives are cut off and companies decide not to build in those locations, the revenue disappears. “That’s where we need to look at statewide policy,” he said. “Are we going to restrict communities where these businesses could be of great benefit to them?”
The logic behind pressing pause
In general, data center moratoriums are intended to give local communities breathing room while policymakers study the potential costs and benefits of allowing such facilities to be built within their regions. The rate of construction in some states is accelerating at such a rapid pace that local communities are uncertain about the long-term impact of this industry.
Justin Flagg, director of communications and environmental policy for Sen. Krueger’s office, told TechCrunch that part of the push for the bill is what he calls New York’s energy affordability crisis. The crisis is troubling both ratepayers and politicians.
A group of 30 state legislators recently called on New York Governor Cathy Hochul to declare an “energy emergency” in New York state because of the rate hikes. Although many factors are at play in rising energy prices, the consensus is that data center growth is making the problem worse, not better.
“There is widespread dissatisfaction expressed regarding energy prices,” Flagg said. “Certainly, we hear from constituents all the time that their electricity and gas rates are going up.” He added that local backlash is also driven by environmental concerns, which he described as “water impacts, noise, and impacts on local infrastructure.”
In response to these grid concerns, big tech companies like Microsoft, Google, Meta, and Open AI have pledged to pay for additional grid costs in the communities in which they operate, often installing behind-the-meter power in conjunction with new data centers.
The Washington Post recently reported that Silicon Valley is increasingly considering building its own private power supply, a type of “shadow grid” that could be used to operate the power-consuming facilities that power the AI industry. This strategy involves launching new large-scale private power sources instead of relying on the public grid.
One example of this practice comes from Elon Musk’s AI startup, xAI. xAI has built a series of methane gas turbines on the grounds of a giant data center in Memphis, Tennessee, known as “Colossus,” which are accused of polluting local communities.
The company’s efforts are already facing significant challenges. xAI reportedly told local authorities that the turbines were excluded from air quality permits due to a loophole in the law. The Environmental Protection Agency ruled in January that Musk’s company was not exempt from permits and that his previous operations were illegal. Environmentalists have accused the facility of emitting “smog-forming pollutants, soot and toxic chemicals” and announced plans to sue the company over the issue earlier this month. Musk’s facility has since authorized the use of turbines.
As the xAI example shows, when “shadow grid” strategies aim to solve one problem (overloading the public power grid), they can create many new problems, and environmentalists and local communities alike have raised concerns about how new facilities will spew pollution into people’s backyards.
At the federal level, the Trump administration has also made AI one of its top priorities, seeking to characterize the industry as responsible stewards of the communities it builds. Indeed, Trump administration officials have floated a hypothetical policy that would force AI companies to internalize additional costs for regional power grids, although the details of this policy remain vague.
debate over taxes
For years, communities have encouraged data center development through tax breaks. A CNBC analysis last summer found that 42 states either have no sales tax or exempt tech companies from all or part of the sales tax. Of these, about 16 states publicly reported the amount of money they gave to businesses through tax breaks. The media reported that the forfeited proceeds amounted to about $6 billion over five years.
But now more states are considering turning off the spigots. Georgia, for example, has recently introduced various bills to crack down on industry interests. State Sen. Matt Blass, who introduced the bill to repeal the server sales tax exemption, told TechCrunch he doesn’t believe tech companies need the additional funding, nor does he think eliminating the benefit would discourage them from doing business in the state. “Georgia has low property taxes, low property values, and a low overall tax burden compared to other states,” Blass said. “So our overall business environment is good. That’s the appeal.”
Brass, who chairs the state’s rules commission, told TechCrunch that he expects his policy to receive significant support. A similar bill passed the Georgia General Assembly in 2024, but was vetoed by the governor. Brass added that he believes the state could benefit hundreds of millions of dollars if the exemption were repealed.
A similar policy battle is currently unfolding in Ohio. A group of Democratic lawmakers recently introduced a bill that would eliminate the state’s sales tax exemption, similar to Georgia’s. A similar policy was introduced last year, but like Georgia, it was vetoed by the state’s governor, Mike DeWine. “The most ridiculous tax cuts right now are for data centers,” state Sen. Kent Smith, one of the bill’s sponsors, said recently. “For everyone who pays their electricity bills, this tax break needs to be repealed.”
At the same time, there are still many members of Congress who support the server sales tax exemption. In Colorado, state Representative Alex Valdez recently introduced a bill that would close the data center loophole for the next 20 years. Valdez told TechCrunch that the exemption is just a carrot to bring in tech companies. Once a company establishes a presence in the state, it becomes a source of passive income that inevitably boomerangs to benefit the communities in which it operates, he said.
