Roughly 40 states offer data centers billions of dollars in state and local subsidies, forgoing vital tax revenue that supports schools, roads, public transit, and healthcare. However, minimal transparency requirements make the true extent of their economic impact murky. While job creation is used as justification for granting subsidies, reality often falls short of expectation. With stronger guardrails, states can better protect their communities and finances.
In Climate XChange and Good Jobs First’s recently published State Policy Toolkit for Data Center Regulation on Tax, Employment, and Economic Impacts, we explore state policy solutions for reducing data centers’ impacts on taxes, employment, and state and local budgets.
In this webinar, the toolkit’s authors reviewed impacts of data center subsidy programs, what technical solutions are available, and how state policy can help protect the economic wellbeing of their communities. Kasia Tarczynska, Senior Research Analyst at Good Jobs First, discussed states’ authority over data center subsidies and opportunities for subsidy reforms, and Jacqueline Adams, Senior Policy and Research Associate at Climate XChange, explored data center economic policy trends, as well as opportunities for levying new taxes and fees on data centers and preserving community choice.
Introduction and Policy Landscape: Regulating Data Centers’ Tax, Employment, and Economic Impacts
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Around 40 states offer subsidies for data centers, which are defined as any form of public financial support for individual companies by state and local governments. Data centers most commonly receive subsidies through state-level sales and use tax exemptions and local property tax breaks, and many subsidies layer on top of each other.
These subsidies undermine state and local budgets, reducing the amount of public funding available for roads, public transit, healthcare, and education. Subsidies are often established with few guardrails, such as quantity and quality of jobs created, caps on the total amount of foregone state revenue, or when subsidies will stop being offered. Additionally, many states require minimal reporting on key impacts like the total amount of revenue lost, as well as information on the jobs and wages that companies offer in return for tax breaks.
In 2026, 83 bills were proposed across 26 states to establish guardrails on the tax, employment, and economic impacts of data centers. Of these, 11 bills were enacted, many of which sought to remove or limit tax credits for data centers. Others required more stringent environmental and energy requirements, as well as disclosures on job and tax impacts, for subsidy recipients.
Strategy 1: Establishing Data Center Moratoria
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The most stringent policy mechanism to mitigate adverse tax, employment, and economic impacts from data centers is to establish a moratorium on data center construction until states can fully study their economic and fiscal impacts.
- In 2026, Eighteen states proposed 30 moratorium bills, only one of which was enacted in Arizona. Other states, (e.g., New York) have sought to establish moratoria through executive orders.
- During the moratorium period, policymakers should consider establishing task forces with a diverse array of experts to study possible impacts of data centers .
- States may follow this initial moratorium period with either a longer-term ban or utilizing the remaining strategies in this toolkit for stringent regulation if data centers are to remain.
Strategy 2: Pausing or Sunsetting Data Center Subsidies
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States can also pause or sunset subsidy programs for data centers, regardless of a broader moratorium on data center construction.
- States can pause or end subsidies (e.g., Maine), conduct cost-benefit and fiscal impact studies of subsidies (e.g., Georgia), and determine any necessary reforms or elimination.
- States should explore the possibility of an immediate pause on subsidies (e.g., Ohio ), for both new and existing data centers.
Strategy 3: Reforming Data Center Subsidies
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If states decide to keep data center subsidy programs, they should create strict guidelines to ensure communities and budgets are protected from potential adverse impacts.
- States can control subsidy costs by capping the amount of tax exemptions per year, program, and company, as well as excluding specific items and operations from tax exemptions, like crypto mining, construction materials, electricity purchases, and replacement equipment (e.g., Minnesota and Washington). States can also shorten eligibility periods.
- States can require standards for job quality (e.g., Nevada), clean energy usage, full payment of electricity and grid costs, and environmental protections to qualify for subsidies.
- States should require high-quality reporting and establish strong enforcement mechanisms and clawback provisions for companies that don’t meet requirements.
- States should require public disclosure of the details of each subsidy deal before and after approval, including the subsidy amount, jobs and wages, and energy and environmental commitments.
- States should require robust community engagement before companies can access subsidies, and prohibit non-disclosure agreements (NDAs) on data center deals.
Strategy 4: Levying New Taxes and Fees on Data Centers
Learn more by watching the webinar at 32:43.
States can also create new taxes and fees to recoup some of the foregone revenue from data center subsidy programs.
- States can levy taxes on equipment purchases, electricity use, and property taxes (e.g., Virginia).
- States can levy fees on data centers and direct new revenue toward mitigating data center impacts, such as clean energy and infrastructure investment, electricity efficiency and affordability funds, and job creation, focusing on frontline and historically underserved communities (e.g., Illinois’ proposed bill).
Strategy 5: Preserving Community Choice
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Data centers are local projects with big impacts for host communities, and states can empower localities to make permitting, construction, and zoning decisions or to reject data center applications or site plans.
- States should ensure that communities have a say in how data center revenue is spent, and what additional economic requirements they should meet.
- States can require community benefits agreements (CBAs) or ordinances (CBOs) for approval of permits, site plans, and other authorizations, and can empower localities to reject the agreements (e.g., Michigan).
- CBAs are legally binding agreements between developers and local coalitions or organizations.
- CBOs are legally binding agreements between developers and local governing bodies.
- States can require that CBAs ensure robust community engagement and protections (e.g., Illinois’ proposed bill), including through:
- A slow, transparent development process that accommodates continuous community input and agreements.
- Good-faith negotiation from data center companies and mediators.
- Technical support for communities while drafting and negotiating terms.
- Requirements for local hiring, prevailing wages, union labor, and use of tax and fee revenue on specified local needs.
For more information on guaranteeing community protections through CBAs and CBOs, see the NAACP’s Community Benefits Agreement Template, Connect Humanity’s Negotiation Guide, AI Now Institute’s Considerations for Community Benefits Agreements, and Climate Mayors’ Data Centers and the Climate Landscape.
Q&A
Learn more by watching the Q&A at 41:53.
Q: How many states report jobs and subsidies related to data centers?
Q: What does the property tax landscape look like for data centers?
Q: Many labor partners support the jobs that data centers bring, even if those jobs are short-term. How can we support labor unions in advocating for longer-term and higher quality jobs?
Q: What shifts are we seeing in the use of community benefit agreements (CBAs) on a project-by-project basis, compared to statewide CBA mandates for data center projects? How can CBAs be better leveraged to protect communities?
Q: What are some of the emerging approaches in this policy sphere that are particularly interesting and impactful? How is this landscape changing?
