GUEST COLUMN.

Once clustered in a few tech hubs in larger cities, today’s massive data centers are appearing from Northern Virginia to the Great Lakes, the Atlanta region, Texas, and beyond. Driven by surging demand for cloud services and AI computing, this boom promises economic growth but also poses serious challenges for infrastructure, energy systems, and local budgets.

A recent study by the University of Virginia’s Weldon Cooper Center for Public Service, (released on January 13),  sheds light on how this growth can impact regional planning. The research focused on the Great Lakes region, which hosts more than 500 data centers, with another 200 facilities expected in the next five years. These new additions will, on average, be 30 times larger and more energy-intensive than the existing ones.

Infrastructure Demands and Community Impacts

Although they support the “virtual” world, data centers have a massive physical footprint. These facilities need access to fiber networks, transmission lines, and large volumes of water for cooling. As a result, they are often located in suburban or industrial zones, near major cities. Indeed, more than 80 percent of Great Lakes data centers are in metro areas, which puts added pressure on local infrastructure. Energy demand is by far the most critical issue. Running and cooling thousands of servers around the clock requires huge volumes of electricity.

A recent report on data centers showed that in Virginia, data centers are projected to consume 25 percent of the state’s total electricity by 2025, with the numbers rising substantially until 2040. The Great Lakes region is catching up: today, data centers use about 3 percent of the region’s electricity, but that will rise to 8 percent by 2030 and 21 percent in 2040. In some states, the impact is even larger. Illinois is projected to hit 16 percent by 2030, and Minnesota’s demand is expected to go from less than one trillion watt-hours in 2025 to 6 trillion by 2030. Without upgrades, this surge will strain power grids, keep older fossil-fuel facilities open, undermine decarbonization goals, and push costs onto other ratepayers, with some states already considering legislation to limit the impact on households.

Economic Development: Big Investment, Few Jobs

Notwithstanding these issues, it’s not surprising that local leaders continue to compete for data centers. A single campus can mean hundreds of millions of dollars in construction, equipment, and tax base expansion.

If properly managed, these facilities can boost local revenues, especially in places that tax business personal property. The buildings and servers can generate significant tax income, support public services or reduce tax pressure on homeowners. But there’s a catch. Jurisdictions that offer large tax breaks to compete for these projects can give up a substantial portion of the potential revenues. Right now, 34 states offer some form of exemption, and many localities have been creating incentives that also can undercut their potential fiscal gains.  

What’s more, jobs growth is more modest than many expect. The Cooper Center report shows that most of the economic impact occurs during the construction phase, not in long-term operations, and once built, despite their size, data centers are run by small teams.  Most of their ongoing spending goes toward electricity, not wages, and most of the equipment comes from outside the region, limiting supply chain benefits.

In the Great Lakes, by 2024, capital expenditures (mostly construction) related to data centers were already responsible for four times as many jobs as facilities operation. This doesn’t mean data centers don’t offer value, but they’re not engines of job creation. In short: don’t look for a labor market silver bullet where data centers are built.

Finding the Balance: Lessons for Policymakers

Virginia hosts about a quarter of the nation’s data center capacity, thanks to cheap power, land availability, its early investments in fiber infrastructure, and generous tax incentives. This early epicenter offers lessons about the costs, tradeoffs, and planning hurdles other states are now beginning to face. Now, the Great Lakes region is becoming a hotspot due to its cooler climate, metro markets, and robust power grid. This isn’t a niche trend, and states must prepare for the infrastructure demands and policy decisions that come with it.

Maximizing benefits—and minimizing costs—requires smart planning, thoughtful policy, and a willingness to recalibrate expectations. States can link tax incentives to community goals by applying performance-based policies. That could include energy-efficiency benchmarks, renewable sourcing, water conservation, or local hiring. Planning and regional coordination ahead of power, water, and broadband upgrades will be essential. Zoning and permitting systems should be updated to reflect new infrastructure needs while also protecting sensitive communities and natural resources.

In economic terms, data centers should be seen as part of a broader development strategy, not as the “El Dorado” for revitalization. They bring large-scale investment and potential tax revenues, but few jobs or supply-chain spillovers. States and localities can benefit from data centers, but only if tax frameworks avoid giving away too much and ensure long-term value in return. The digital economy needs infrastructure, and an awareness of the implications – both positive and negative – is critical for state and local leaders who want to play in the data center game.

The contents of this Guest Column are those of the author, and not necessarily Barrett and Greene, Inc. 

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