‘Sea change’ in local reaction to data centers poses test for developers: ‘Power shift’

Public opinion is swinging against data centers, marking a reversal in fortunes for technological advancement that faces an increasingly powerful and skeptical populace.

A decade ago, and more, states were rolling out the red carpet to incentivize data center construction through tax breaks and other policies. Virginia began offering tax incentives for development in 2008. Ohio introduced sales incentives in 2011. Texas followed with tax breaks in 2013, with Georgia and Illinois doing the same in 2018 and 2019.

All these states have led the country in data center construction, and all have begun, in recent months, to seriously evaluate rolling back those incentives, or are laying the groundwork to do so. The pushback comes as a Gallup poll published in May found that over 70% of citizens don’t want a data center in their backyard.

Kevin Frazier, the Director of the AI Innovation and Law Program at the University of Texas’s law school, credited a power shift from data centers to citizens for the change.

“It’s certainly been a sea change in how local communities are thinking about when and how to bring in data centers,” he told the Washington Examiner.

“Ten to 15 years ago, the demand for data centers was not nearly as high as it is today, and so the sort of sweetheart deals that were reached 10 to 15 years ago, in which communities were really trying to lure data centers to their backyard,” he added. “That’s just something that no longer makes sense in a world in which communities have been able to negotiate for incredible arrangements with data center developers now that really benefit the local community instead of providing tax breaks.”

In a sense, data center developers, from the likes of Meta, Google, Microsoft, and Amazon, hold far more power than they did a decade ago. On track to be a multi-trillion-dollar industry, they’re being spurred on by the AI-friendly Trump administration, meaning their survival no longer hinges on tax breaks and similar incentives. Still, rising pressure from locals concerned about issues ranging from water sourcing to electricity prices has begun to force them to make critical concessions. Local backlash across the country has often crushed data center development in recent months, from Kevin O’Leary’s project in Utah and a 1,000-acre campus in Chesterfield County, Virginia, to a ban on them in San Marcos, Texas.

Experts consider data centers essential to sustain the modern way of life, as they power the technological grid along with artificial intelligence. But in recent months, pressure has risen from both sides of the aisle to reform the way they are expanding, a development particularly notable on the Republican side, as it signals that the Trump administration faces internal pressure to change its approach to technological advancement.

Many conservatives, though generally favorable towards AI and data centers, worry that the speed of development is unsustainable, transferring control over the direction of technological advancement and infrastructural resources from citizens to politicians and industry power figures. That’s the concern of Humans First, a conservative group with ties to Trump that is leading nationwide protests calling for data center reform on July 18.

Others fear that data centers, when planned hastily without local input, drain vital community infrastructure, including the energy grid and water systems. That’s why Gov. Greg Abbott (R-TX) has caved to intense pressure from certain parts of the state when he endorsed a ban on data center development in rural parts of Texas last month, and called on developers to “bring their own money, bring their own power, reuse their own water, and do it in a way that reduces the cost of electricity for residents.

The pressure is galvanizing concessions from data centers. These days, many new developments are building their own energy grid, embracing advanced closed-loop cooling systems that recycle water, and even investing in public welfare. Microsoft’s data centers have pledged to ensure all new data centers will use closed-loop cooling systems starting in 2027. Amazon has pledged to be water-positive by 2030, meaning that it will return over a gallon of water to areas it is operating in for every gallon of water it uses. Frazier pointed to a case in Louisiana, where construction of Meta’s data center fueled $50,000 bonuses for local teachers.

“There’s certainly been a power shift. We’re seeing that as the demand for data centers grows,” he said. “We know that the hyperscalers are in incredible demand for having more compute and having more data centers available, and so that leaves the communities in a stronger bargaining position.”

“The rolling back of the incentives probably isn’t going to be the thing that slows the data center build-out. The demand from hyperscalers is so great that they are willing and able to pay for the opportunity to build in certain communities,” Frazier added. “The biggest threat is the perpetuation of misinformation about how data centers use water and use land, and so that kind of public opposition in settings that may not always be characteristic of a thorough and nuanced deliberative discussion.”

Mark Jamison, a nonresident senior fellow at the American Enterprise Institute who teaches at the University of Florida, traced the change in attitudes toward data centers to last July, when PJM set new energy capacity rates that drove up electricity prices. The changes from PJM, the country’s largest regional power grid operator, were driven largely by data center expansion. In Jamison’s view, the electricity prices should stabilize in the long term when market forces even out spikes, pointing to recent studies on the matter. One, from the Electric Power Research Institute, indicated that between 2015 and 2024, average household electricity prices fell by about 0.4% for every 10% increase in data center capacity. Between 2019 and 2024, the average household customer lived in a state where data center capacity grew by 160%, which lowered their electricity price by 6%, the independent, non-profit organization concluded in June.

“Over any amount of reasonable time that you can kind of measure in a study like this, the extra demand for electricity that data centers represent actually trigger economies of scale, and so prices are lower, but in the immediate term it looks like this is going to be higher, and so people look at the immediate and say, “Oh my goodness, costs are going to be higher,’” Jamison said.

“As far as we can tell, the best evidence we have is that data centers drive economies of scale in the system and lower electricity costs, but people see the immediate actions that trigger something I’m going to have to build something that looks like higher costs, and that’s what people respond to,” he added.

Jamison believes the key to resolving concerns lies in developers’ ability to use criticism to address weaknesses and sharpen their industry. He urged business and utilities companies to sit down with each other, while calling on local citizens to question themselves, describing opposition to data centers as comparable to negative associations with nuclear power plants. Pointing to studies showing people living near nuclear plants view them far more favorably than the general public, he argued the same could be true with data centers, and suggested it could be good for developers to present immediate tangible value to locals, such as investing in electricity or water systems for the broader community.

“People kind of need some hands-on experiences with things,” he said. “‘Tell you what, I will improve the water system you already have, and I will build what I need as well’ … I like that kind of approach, that the community needs something, and especially water systems. Water systems all across the U.S. are underinvested, and so that’s something that can be helpful.”

“This has happened many times in history,” he continued. “Once people have good experiences with the with the data centers, and know what that’s where the experience is coming from. I think things will improve.”

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Frazier reiterated the importance of transparency for data centers to be successful in the U.S., particularly around electricity costs, and clearly articulating what he described as the benefits of AI to communities often unfamiliar with matters, including in healthcare through drug development “that may be able to really improve the quality of care and reduce the expense of care.” On the other end, he urged data center skeptics to scale back “a lot of deliberation that’s been grounded in misinformation and in hyperbolic arguments,” arguing that “what’s really important is that we improve our civil discourse.”

“This is a technological breakthrough that’s going to require all of us to be on the same page and to have nuanced and thorough conversations,” he said. “And so what I hope is that these conversations serve as a reminder of the fact that it’s so important that we have a strong civil society and that we have evidence-based policymaking.”