Data center companies “dug their own grave,” Texas Governor Greg Abbott said Sunday, and “that’s why they got the backlash they deserve.” Nine months ago, Abbott crowned Texas the epicenter of AI development, alongside Google executives announcing a $40 billion investment in the state.
Pennsylvania’s Josh Shapiro, a Democrat who actively recruited Amazon’s $20 billion commitment to his commonwealth, made a similar U-turn days earlier, signing an executive order he calls the “nation’s strictest guardrails” on data centers: no more fast-track permits, no nondisclosure agreements, and no state permit review until developers make binding commitments to community standards.
When a Texas Republican and a Pennsylvania Democrat pivot to the same position in the same week, it becomes clear that the politics of data centers have shifted. Like everything else in AI, sentiment is moving at an extraordinary pace. Even the AI industry’s biggest winner recognizes the need for change. The tech sector needs to “do a much better job working with the communities,” Nvidia CEO Jensen Huang said this week.
While shifting or walking back public statements never looks good, leaders are simply listening to voters’ demands. The truth is that leaders across the political spectrum are pivoting on data centers for a simple reason: they want their communities to actually benefit. The best ones are listening to citizens’ concerns while constructively raising the bar for the data center industry—not cutting them off.
The costs and benefits of data centers
Seven in ten Americans tell Gallup they oppose a data center in their own community, more opposition than a nuclear plant draws. The primary complaint started with electric bills. PJM’s independent market monitor attributes 63% of the region’s 2025/2026 capacity price increase to data center load, roughly $9.3 billion recovered from customers across 13 states in a single year, causing household bills to rise 1.5% to 5% this summer.
The countervailing benefits are just as measurable. In Loudoun County, Virginia (often referred to as known as the "Data Center Capital of the World”), data centers supply as much as 31% of local revenue by the state legislature’s audit count, and the county has banked a $119.7 million stabilization fund against any downturn. The facilities also pay blue-collar wage premiums of 10% to 64% over comparable employers, the venture firm Andreessen Horowitz finds in Indeed postings data. The Dallas Fed has reported that skilled concrete workers, who typically make $28 to $32 per hour, are earning $45 per hour and a $150 per diem on data center jobs. And in July, the National Federation of Independent Business found that small-business optimism is at its highest levels in a year, crediting AI investment in chips and the structures that house them with spillover business opportunities.
The fight over data centers, meanwhile, has become a social and political flashpoint and, at times, embellished beyond what the record supports. Some backlash is earned. Most jobs promised are temporary. Resource demands are massive, and draining when mismanaged. Speculators have gamed interconnection queues and incentive programs, while both developers and policymakers have done a poor job communicating to the public. We heard these concerns from over 50 mayors leading cities that span the U.S. during our annual Yale Mayors College in March.
Done well, though, these projects are a once-in-a-generation development opportunity for places ranging from underused farmland to urban brownfield sites. As Huang explained it: “This is the first time in probably the last century that we’re able to invest in sustainable energy, invest in improving our energy grid, securing our energy supply, reducing the cost of energy across the country.”
Local and federal responses
Opposition to data centers tends to concentrate at the county level because costs pool locally while benefits disperse. A county absorbs the water draw, the noise, the land conversion, and a share of the regional capacity bill. The compute serves users elsewhere, and the returns accrue to shareholders nowhere nearby. Every serious policy response attempts to move some portion of that diffuse benefit back to the community bearing the concentrated cost.
The responses span a diverse spectrum. New York paused state environmental permitting on large data centers for at least one year, pending a statewide study—the only statewide pause in effect, for now. Texas ordered an audit of every project in its grid queue, and the state’s grid operator paused new data center connections until the audit is complete. Maine’s legislature passed the first statewide construction moratorium this spring, only for Governor Janet Mills to veto the bill and create an advisory council to write standards instead. More broadly, 27 states advanced large-load legislation this year, with California, Ohio, and Utah enacting laws that exceed the industry’s voluntary ratepayer pledge to the White House.
At the federal level, Washington continues to accelerate. A July 2025 executive order fast-tracked federal permitting, and a December preemption order, whose promised list of invalid state laws has yet to appear, expressly preserved state authority over “AI compute and data center infrastructure, other than generally applicable permitting reforms.”
Beneath the surface, the two sides are searching for a shared premise: the buildout must take the form of a mutually beneficial, transparent partnership. The public is already there. In Morning Consult polling commissioned for our June CEO Summit, 55% of Americans view data centers as a community benefit, while 69% call the backlash justified, the clearest indicator of an electorate searching for better terms, not fewer projects.
“Don’t ban—raise the bar, ask for more,” suggests Chris Crosby, CEO of Compass Datacenters.
Meta’s Mark Zuckerberg drew the same position in his August letter, proposing a community compact of local jobs, investment in schools, and public services, held-down energy prices, and environmental care, backed by a $1 billion fund. When the company told Eagle Mountain, Utah, back in 2018 that it wanted to be a welcomed corporate partner, local public leaders answered, “Well, then we’re going to ask for some things.” And ask they did.
Virginia Governor Abigail Spanberger, whose state hosts more data centers than any other, has taken note and come to define the state’s role as ensuring “our local communities know what they can ask for and what standards they should be setting.” If knowing what to ask for is half the problem, then capacity to execute is the other half. The table often seats a county planning staff of a dozen across from a trillion-dollar counterparty, and that imbalance has unfortunately appeared in lopsided deals negotiated behind nondisclosure agreements.
Yet the smaller side of the table holds more leverage today than it may realize. The industry is desperate to scale and willing to deal. “AI is constrained today by data center capacity, not compute or software,” MARA Holdings CEO Fred Thiel tells us.
In reviewing the tariffs, statutes, audits, agreements, and published commitments behind the American AI buildout and other noteworthy economic development projects for our forthcoming book When Machines Act, we identified those practices that have produced win-win outcomes for all parties.
Pay full freight, and sign for the total
Our research suggests that major industry players have already accepted the central demand from communities. Data centers should pay the full grid costs of their own growth, and industry committed to do so when seven of them, from Amazon to xAI, signed the White House ratepayer pledge in March. Anthropic, though not among the signatories, also committed weeks earlier to cover the electricity price increases, transmission lines, and substations its own data centers require. “This should be the expectation across the industry,” the company wrote. Microsoft went even further, telling regulators to set rates high enough so that data center costs do not impact anyone else.
A pledge is only as good as the paper behind it, which is why Google’s Capacity Commitment Framework matters as much as any of them—a structure that includes guaranteed minimums, a security deposit, and cancellation fees a utility can collect. Water has followed the same path from promise to specification. Microsoft is aiming for a 40% improvement in datacenter water-use intensity by 2030, and Meta has pledged to restore double what it consumes in stressed watersheds.
Flexible demand response is another potential lever few contracts have adopted and is one of the cheapest options available. Duke’s Nicholas Institute calculates that if data centers trimmed their peak demand just 1% to 2%, retail electricity prices could fall as much as 2.8%. Utilities build power plants and wires to cover the few highest-demand hours of the year, so a data center that briefly tempers or shifts computing during those hours reduces the amount of new generation and transmission that must be built. The avoided construction flows through regulated rates as savings to every customer. Operators can avoid performance losses—shifting tasks in time or place during peak periods—and save up to $8.00 per megawatt-hour for their contribution.
Trade tax breaks for assets that last
Incentives are a different matter, costing taxpayers real money, so the first question for any state is whether a subsidy changes a company’s decision. Georgia’s independent state audit found that the sales-tax exemption changed the siting decision for roughly 30% of data center activity, and while the incentive produced a net fiscal loss of $433 million in fiscal 2025, it also returned $2.86 in economic value across the broader economy per dollar forgone. While critics carry the loss and boosters the multiplier, the audit’s real lesson belongs to neither camp. A state that pays for 10 projects to decide only three should be asking for far more than it does.
A study by the Brookings Institution finds that hyperscale sitings follow power, land, and fiber, meaning subsidies largely pay for what was coming anyway. The smarter deal asks the incoming project to fund assets the community keeps, such as transmission upgrades, roads, and water systems, that compound in value over the long run.
Compass Datacenters’ Crosby volunteers that rationale himself. On a $5 billion project, spending $100 million on transmission upgrades “makes a lot of sense to me from a real estate perspective.” Taking a page from semiconductor industrial policy—such as Micron conditioning its Central New York megafab on a $500 million community fund shaped by 300 local civic groups—states can require data center operators to seed long-term local endowments. And New Jersey is conditioning AI data center credits on partnerships with in-state universities and startups, converting a tax break into innovation-economy seed capital.
Write the rules before the applications arrive
Seed capital compounds only where the rules were written before the arrival of the applications. Eagle Mountain set expectations first and approvals second. Meta spent roughly $100 million on roads and electrical service before construction, backed a creek restoration project the city expects to return 476 million gallons of water a year, and granted more than $1 million to local schools and nonprofits. The company is carrying that playbook forward to Hyperion, its largest campus yet, in Richland Parish, Louisiana, where it has pledged more than $1 billion for local roads, water, and wastewater systems and funded data center trade scholarships for every parish high school graduate—and where surging parish tax receipts funded $50,000 teacher bonuses this year.
Yet both campuses also carried confidentiality and nondisclosure agreements that cast a shadow over the goodwill earned from community investments. Data centers need to deal transparently and operate openly, since closed-door agreements breed suspicion even when the terms are generous.
Public verification, therefore, matters as much as a pledge to a long-term partnership. The city of Lancaster, Pennsylvania, publicly posted its full agreement with a data center consortium, secured the obligations with a letter of credit, and bound the counterparties to the land, all while granting no city tax breaks. Georgia’s audit process exists because of a requirement from a 2024 transparency statute. New York attaches a uniform per-megawatt host fee to large renewable projects—a renewable-siting design that data center statutes could borrow—and researchers studying the first twenty projects under the law found the fee became a floor that communities negotiated above. From another parallel case, Massachusetts addresses the root of the asymmetry by allowing the gaming commission to require casino applicants to pay the host community’s legal expenses. In policy, the standards embraced by Spanberger provide communities with the knowledge of what to ask for and how to ask for it well.
How a state sequences these tools matters as much as which it selects. States must build the accountability layer first, requiring disclosure, published agreements, and scheduled audits before offering a single incentive. The negotiated package of local benefits that Lancaster and Eagle Mountain modeled (host community frameworks) and the rate design that binds a data center to the full grid costs the industry has pledged (cost-coverage tariffs) should then pair local benefits and ratepayer protection as one package. Any incentive that follows needs to be conditioned on a “but-for test” fortified with a proportional clawback instrument, and only then should states pilot novel concepts such as flexible demand response and ownership stakes that give host communities equity in the projects themselves.
An effective state framework
Ultimately, we have found that four universal principles govern an effective state framework:
Commitment prior to permitting: Binding community and grid compacts must precede site approvals.
Proportionality: Infrastructure and community asks must scale directly with peak megawatt demand.
Enforceable security: Pledges must be backed by letters of credit, escrow reserves, or parent-company guarantees.
Statewide baseline floors: Establish statewide statutory floors to prevent developers from regulatory arbitrage across county lines.
A year ago, data center developers and their backers spent little to no time on policy. Today, some, Crosby among them, are spending as much as 80% of their time on it. As he put it: “Our social license is at risk, and we have to figure that out as an industry.”
Willingness, at times, has even outrun the law’s ability to receive it. Compass Datacenters offered the Texas Public Utility Commission $100 million toward transmission upgrades but was refused because existing law did not permit the entity to accept the funding. The mismatch captures the moment. The moment is moving faster than the rules that govern, and that pace obliges data center owners and developers to work closely and transparently with the states, localities, and communities that host their projects.
When managed properly, we believe these facilities can be monumental opportunities for the towns that attract them. The buildout, in Huang’s words, “is going to re-industrialize the United States.” If the trend persists, however, the moment could be lost to neighboring nations that do embrace them, such as border towns like Tijuana, Mexico. Even more, the demand underneath them carries national weight, too, as the buildout will help decide whether America leads the AI race with China or falls behind. What remains is establishing enforceable terms that let both sides meet in the middle, so the communities hosting the infrastructure of the AI era also hold a durable share of what is built in their backyards.
In 1937, Aldous Huxley ominously warned in Ends and Means: “Technological progress has merely provided us with more efficient means for going backwards.” As communities across the nation and across parties come to embrace this neo-Luddite resistance to data centers, some developers are listening, learning, and hopefully acting.
With research assistance from Frankie Reichman and Zander Jeinthanuttkanont.
