For state legislators, utility regulators, economic development staff, and agency officials
State policy shapes whether and how data centers locate in your state. This guide helps you balance economic development goals with community protection, grid reliability, and environmental sustainability.
The AI infrastructure buildout represents the largest private infrastructure investment in American history—and it's happening at extraordinary speed.
Developers choose states based on a hierarchy of factors:
High-voltage transmission capacity and grid interconnection timeline. This is the primary constraint.
States with streamlined utility approval processes and available capacity attract projects.
Sales tax exemptions, property tax programs, and expedited permitting significantly influence decisions.
Access to major fiber routes and network hubs.
Skilled technical workforce availability and suitable land parcels (100-500 acres).
Leading states by project count and investment:
All 50 states have at least one announced or operating data center project.
Example: Virginia's sales tax exemption costs ~$928M annually but is credited with attracting Data Center Alley.
Consider: State revenue sharing to offset local losses, minimum benefit requirements, transparency mandates.
A rigorous cost-benefit analysis should evaluate both direct fiscal impacts and broader economic effects. Don't rely solely on developer-commissioned studies.
| Metric | Data Center | Manufacturing |
|---|---|---|
| Jobs per $1B investment | 50-100 | 300-500 |
| Average salary | $75K-100K | $45K-65K |
| Local hiring rate | 20-80% (varies) | 60-90% |
| Skill requirements | High (IT, networking) | Moderate |
Data centers create fewer but higher-paying jobs than traditional manufacturing. Consider workforce availability and training needs.
Data centers are fundamentally energy infrastructure. State utility regulation and energy policy are as important as tax incentives.
How quickly can utilities approve 100MW-1GW connections? States with streamlined processes attract more projects. Consider: queue management, study timelines, cost certainty.
Who pays for transmission and distribution upgrades? Developer-funded vs. ratepayer-funded vs. hybrid. This is often the hidden subsidy.
Special rate classes, interruptible service options, demand response programs. Balance attraction with fairness to other customers.
How do utilities plan for sudden, massive load additions? Require data center load forecasts in IRP proceedings.
Do data centers count toward or against RPS goals? Their load can drive renewable development or undermine goals if met with fossil fuels.
Google/Microsoft target: carbon-free electricity every hour, not just annual matching. Few grids can deliver this today. Policy can accelerate development.
Long-term renewable PPAs can finance new solar/wind/nuclear. Regulatory frameworks should facilitate these contracts.
Massive load additions stress grid reliability. Monitor reserve margins, require load curtailment agreements during emergencies.
Data centers run 24/7 but can modulate load. Demand response programs can provide grid flexibility.
History: Data Center Alley in Loudoun/Prince William counties since early 2000s. First mover advantage.
Policy Approach: Aggressive incentives—sales tax exemption on equipment, streamlined permitting, supportive local governments
Results:
Lessons: First-mover advantage real but comes with costs. Grid planning lagged development. Community concerns emerged after buildout. Consider front-loading requirements rather than retrofitting.
Advantages: ERCOT grid independence, deregulated market, business-friendly environment, available land and power
Growth: 80+ projects announced 2024-2025, concentrated in Dallas/Fort Worth, Austin, San Antonio
Concerns:
Policy Evolution: State considering load growth management, resource adequacy requirements, interconnection queue reforms
Lessons: Speed attracts projects but creates risks. Grid planning must keep pace. Water constraints may limit growth in some regions.
Catalyst: SB 237 (2024) expanded brownfield tax incentives to include data centers
Pipeline: $11.5B in announced projects (2024-2025), including OpenAI Stargate ($7B, Saline Township)
Advantages: Available transmission capacity, Great Lakes water, manufacturing workforce crossover, competitive incentives
Challenges:
Lessons: Incentives work—perhaps too well. Need to pair attraction policies with community preparation and protection frameworks. Water abundance is an advantage but requires stewardship.
Your policy approach should reflect your state's priorities. These recommendations can be mixed and matched based on your goals.
Most states will want to balance economic development with protection. Consider:
Explore our complete question bank or review resources for other stakeholders.