Discontent erupted across the country over the ever-growing glut of server farms that accompanied the AI boom. The anger grew so loud that it began to push legislative agendas. Some states and communities are considering temporary bans on new data center development. Earlier this month, New York joined the club with a bold new proposal to stop local cloud-building in its tracks.
A new New York state bill would impose a three-year moratorium on issuing new permits for data center construction across the state while local regulators get a chance to study the industry’s environmental and economic impacts on communities. The bill’s co-authors, state Sen. Liz Krueger and Assemblywoman Anna Kelles, called the legislation the “strongest” introduced in the country.
While no statewide moratoriums have yet passed, local bans are multiplying rapidly. A few weeks before Krueger and Kelles introduced their bill, the New Orleans City Council passed a moratorium that halted the construction of all new data centers in the city for one year. In early January, Madison, Wisconsin, passed a similar law after protests erupted over regional technology projects.
Similar policies have also passed in swathes of communities in construction hot spots like Georgia and Michigan, as well as many other regions across the country.
Environmental activists have long targeted data centers, but more recent concerns have come from high-profile lawmakers who are drawing on populist anger at the tech industry. In conservative Florida, for example, Governor Ron DeSantis recently announced an AI “bill of rights” that gives local communities the right to limit the construction of new data centers.
In liberal Vermont, US Senator Bernie Sanders proposed a statewide moratorium. And in Arizona, where the political landscape is decidedly mixed, Governor Katie Hobbs recently said she supports eliminating tax incentives for the industry. Politicians have even started arguing over the issues, with Mississippi’s governor taking shots at Sanders online over his moratorium proposal.
The political backlash comes just as tech companies are pouring more and more money into building infrastructure. The four biggest spenders — Amazon, Google, Meta and Microsoft — plan to spend a whopping $650 billion in capital spending over the next year, the vast majority of which will go toward building data centers. Even higher spending is planned in the coming years as companies race to secure as much computing capacity as possible.
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But the speed and scale of these projects have made them increasingly unpopular, according to a recent survey. A recent survey by Echelon Insights found that 46% of respondents would oppose plans to build a data center in their community, while 35% of respondents support it. Another poll from Politico found that while there is significant concern about the facility, many voters don’t have strong views on either side — allowing public sentiment to swing either way.
The industry is already spending heavily to try to change those numbers – at least in the regions where it matters. In January, the Financial Times reported that some of the industry’s biggest data center operators were planning a “lobbying offensive” with plans to “increase spending on targeted advertising and engagement” aimed at the communities where they build.
Tech companies are also making real concessions, such as a planned ratepayer protection commitment that would make them responsible for supplying power to all new AI data centers. But it is not clear that these measures will be enough to attract the public.
Speaking to TechCrunch, Dan Diorio of the Data Center Coalition argued that data centers should appeal to smaller communities because they provide revenue without straining those communities’ limited resources. If the incentives are cut and companies decide not to build in those places, there will be no revenue. “That’s where the national policy considerations come in,” he said. “Do you want to limit communities where these businesses could be of significant benefit to them?”
The logic of pressing pause
In general, moratoriums on data centers are meant to give communities breathing room while policymakers study the potential costs and benefits of allowing such facilities to be built in their communities. The pace of construction has accelerated in some states at such a rate that communities are unsure how the industry will affect them in the long term.
Justin Flagg, director of communications and environmental policy for Sen. Krueger’s office, told TechCrunch that the legislation was driven in part by what he called New York’s energy affordability crisis. The aforementioned crisis is troubling both ratepayers and politicians.
A group of 30 state lawmakers recently called on state Governor Kathy Hochul to declare an “energy emergency” in New York over the rate hike. While many factors contribute to rising energy prices, the consensus is that data center growth is making the problem worse, not better.
“There is widespread dissatisfaction with energy prices,” Flagg said. “We certainly hear that all the time from our constituents whose electricity and gas prices are going up.” He added that the local pushback was also due to environmental concerns – which he described as “the impact on water and noise and also the impact on local infrastructure”.
In response to these grid concerns, major tech companies—including Microsoft, Google, Meta, and OpenAI—have promised to pay for their expansion into the power grid in the communities where they operate, often installing behind-the-meter power sources paired with new data centers.
The Washington Post recently reported that Silicon Valley is increasingly looking to build its own private electricity supply — a sort of “shadow grid” — that can be used to run the energy-intensive properties now powering the AI industry. The strategy involves building massive new private energy sources instead of relying on the public grid.
One example of this practice is xAI, Elon Musk’s AI startup, which – at the site of its massive data center in Memphis, Tennessee, known as “Colossus” – has built a series of methane gas turbines that have been accused of polluting the local community.
The company’s efforts have already run into significant difficulties. xAI reportedly told local officials that due to a legal loophole, the turbines were exempted from air quality permits. In January, the Environmental Protection Agency ruled that Musk’s company was not exempt from the permit, making their previous operations illegal. Environmental activists, who criticize the release of “smog-forming pollution, soot and dangerous chemicals,” announced earlier this month that they planned to sue the company over it. Musk’s facility has since enabled its turbines.
As the xAI example shows, if the “shadow grid” strategy is meant to solve one problem (congestion of the public grid), it threatens to create a host of new ones – with environmental activists and local communities expressing concerns about how the new facilities could spew pollution into people’s backyards.
At the federal level, the Trump administration — which has made AI one of its top priorities — has also sought to characterize the industry as responsible stewards of the communities in which it is built. Indeed, Trump officials have created a hypothetical policy to force AI companies to internalize the cost of their expansion into local power grids, though the details of that policy remain vague.
Tax Debate
For years, communities have supported data center development through tax breaks. Last summer, a CNBC analysis found that 42 states in the US either have no sales tax or provide full or partial sales tax exemptions to tech companies. Of that number, about 16 states have publicly announced how much they have given companies through tax breaks. The lost revenue was approximately $6 billion over a five-year period, the outlet wrote.
But now more and more states are considering turning off the tap. In Georgia, for example, various bills have recently been introduced to counter the industry’s benefits. State Sen. Matt Brass, who introduced a bill that would eliminate the server sales tax exemption, told TechCrunch that he doesn’t think tech companies need the extra cash, nor does he think getting rid of the benefit would deter them from doing business in the state. “If you compare us in Georgia to other states, our property taxes are low, our property values are low, our overall tax burden is low,” Brass said. “So, you know, our overall business climate is good. That should be an attraction.”
Brass, who chairs the State Rules Committee, told TechCrunch he expects significant support for his policy. A similar bill passed the Georgia legislature in 2024 but was vetoed by the governor. Brass added that if the exemption were removed, he believed it could generate hundreds of millions of dollars for the state.
A similar political battle is currently taking place in Ohio. A group of Democratic lawmakers recently introduced legislation that would — as in Georgia — eliminate the state’s sales tax exemption. A similar policy was introduced last year but — like in Georgia — was defeated by the state’s governor, Mike DeWine.
“The most ridiculous tax breaks right now are for data centers,” state Sen. Kent Smith, one of the lawmakers supporting the bill, said recently. “This tax break must end for the benefit of everyone with an electricity bill.”
At the same time, there are still plenty of lawmakers who support exempting server sales tax. In Colorado, state representative Alex Valdez recently introduced a bill that would anchor the data center gap for the next 20 years. Valdez told TechCrunch that the exception is just a carrot to get tech companies in the door. Once they establish a base of operations in the state, they become a source of passive income that inevitably feeds back into the communities in which they operate, he said.