New York became the first state to pause the development of large new data centers, with several others considering similar action to study potential effects as projects proliferate nationwide in support of artificial intelligence technologies.
New York Gov. Kathy Hochul on Tuesday signed an executive order, similar to a measure passed by the state legislature, creating a one-year moratorium on data centers that use 50 megawatts or more of electric power for computing. At 50 megawatts, a project would use enough electricity to power about 50,000 homes continuously.
“As data center development threatens to hike up utility bills, deplete our natural resources, and create uncertainty for New Yorkers, it’s my responsibility to take action and lead,” Hochul said in a statement. “New York will lead the way in creating the strongest standards in the nation for data center development, ensuring that when companies succeed because of New York, New Yorkers succeed, too.”
'New York will lead the way in creating the strongest standards in the nation for data center development, ensuring that when companies succeed because of New York, New Yorkers succeed, too.'
Hochul said she will pursue legislation to repeal sales tax exemptions now being offered for large data center developments statewide. The governor also announced creation of a “data center community investment framework,” to be detailed within the next 60 days, designed to enable communities to obtain more public benefits from data center projects.
At least 14 other states are considering similar data center development moratoriums or bans, according to the National Conference of State Legislatures. They include Georgia, New Hampshire, Oklahoma, Pennsylvania, South Carolina, South Dakota and Vermont.
In April, Maine Gov. Janet Mills vetoed an 18-month moratorium passed by both houses of that state’s legislature. Mills said the legislation lacked an exemption for an AI data center planned for the town of Jay, expected to create hundreds of jobs on the site of a closed paper mill.
That $550 million project, proposed by JGT2 Redevelopment, is currently on hold after partner Sentinel Data Centers withdrew last month.
Project opposition mounts
Technology investment firm Interconnected Capital tracked more than 150 U.S. cities, towns and counties considering their own restrictions on data centers.
Attorney David Rubenstein, who represents data center developers in 15 states, noted that governments are now responding in various ways to concerns from residents and businesses in several places. For instance, Huron County in Michigan expanded a six-month pause into a three-year ban on data center developments, and the Denver City Council approved a one-year moratorium.
Trends could affect corporate location decisions nationwide and the ways in which states and communities compete for business. Rubenstein said tax incentives, often an important part of the data center financing formula, could largely disappear soon, leaving developers to either absorb costs or find other ways to reduce expenses or fill the funding gap.
“Aside from the obvious slowdown in large-scale buildout in those states, spreading moratoria will have a chilling effect in states that appear vulnerable to this policy trend,” Rubenstein, a shareholder in law firm Polsinelli’s real estate practice group in Seattle, told CoStar News in an email on Tuesday.
“Meanwhile the demand for data center space will not slow down, meaning that development pipelines will push to reliably friendly jurisdictions like Texas and Virginia,” Rubenstein said, emphasizing he was not commenting on particular projects or developers.
Power consumption and pricing effects on nearby residents and businesses have been among major issues raised amid escalating data center development, along with safety, land use and other environmental concerns. More than 1,500 data centers are in various planning stages nationwide, according to the Pew Research Center.
Oregon recently became the first state to impose a price hike on electricity used by large data centers, raising fees nearly 30%. Federal regulators have directed utilities nationwide to improve infrastructure and adjust fees to ensure data center operators pay the costs of needed capacity upgrades.
Rubenstein said developers may need to take different approaches to address mounting regulatory risks. The industry “has to start telling a different story” about data centers, including benefits for municipal and school budgets and their part in fueling improvements to electric grid resiliency.
There may also be a shift away from gigawatt-scale projects to smaller facilities to mitigate the potential impacts that have led to calls for development stops.
“I could see some creative developers pursuing ‘adaptive reuse’ of vacant buildings that have access to power, since using an existing building is less disruptive to a community than constructing a new one,” Rubenstein said.