A version of the following commentary appeared in the Kansas City Star.
Many communities are unsure how to respond to data-center proposals.
The upside is real. Data centers have multi-billion-dollar assessed valuations that can bring significant tax revenue, expand the tax base, and allow for lowering tax rates for everyone. Loudoun County, Virgina—part of “Data Center Alley” —is a clear example. There, data centers account for almost half of property tax revenues, enough to fund every county function outside the school system.
But there are costs, too. A single 100-megawatt data center can use 80,000 households’ worth of electricity and consume, on average, 2,600 households’ worth of water. Hyperscale facilities push that further, and can have power draws of 1,000 megawatts, which is comparable to the output of the Callaway Nuclear Energy Center, one of Missouri’s most powerful generators. That kind of load can seriously strain infrastructure.
Further complicating matters is the fact that technology can change quickly, especially when billions of dollars and national security interests are at stake. Computing power that once required hardware that filled warehouses can now fit in a pocket or be worn on a wrist. A decision that originally seemed reasonable when a proposal was first presented might not age well if the costs or benefits of a data center change as a result of technological advances.
Missouri has already taken some action to limit ratepayer costs resulting from new data centers by requiring large data centers to pay their share of costs for connecting to the grid, such as for transmission lines. But Ameren recently stated:
All Ameren customers, including residential customers, pay for expanding the grid through building new power plants through rate increases, and that may be needed to accommodate large-load customers.
This means that average ratepayers would likely pay for new power plants constructed to meet data center demand if Ameren or Evergy does indeed need new power plants. But this possibility is also in question based on how major technology companies implement their recently signed “Ratepayer Protection Pledge” with President Trump.
One promising state-level solution are private electricity grids, also called consumer regulated electricity (CRE). This could create a parallel path for energy generation, and help protect ratepayers from risk, accelerate capacity buildout and innovation for both data centers and power plants, and alleviate pressure on the government to meet every aspect of this complex challenge. New Hampshire became the first state to allow it, and the U.S. Congress is considering a federal CRE policy. Similar solutions can be implemented for water usage.
Locally, the most important thing communities can do is resist handing out large tax incentives. Beyond the digital services they support, the primary local benefit data centers provide is tax revenue. Unlike many other industries, data centers generally do not create large numbers of long-term jobs, generate substantial secondary development, or attract tourists.
If local governments heavily reduce tax collections through incentive packages, they ask residents to absorb many of the significant costs while receiving little benefit.
Besides, developers are scrambling to find suitable locations. We don’t need to bribe them to come here. At Missouri’s Nuclear Energy Summit at the University of Missouri, numerous development experts noted how electricity availability and speed-to-operation had moved to the very top of many industrial corporations’ priority lists. Communities with reliable electricity, water, and advantageous locations are already attractive. Reforms like CRE could make Missouri even more competitive while keeping risk on investors rather than ratepayers.
The better answer is patience. If communities resist handing out tax incentives, ensure additional revenues turn into broad tax cuts, and focus on removing barriers that could hinder timely development, then data centers could become a genuine opportunity rather than a threat.
