Governors who courted AI data centers are now trying to rein them in

Governors who once courted AI data centers are now imposing stricter rules, with Pennsylvania Gov. Josh Shapiro requiring local approval for state permits and Texas Gov. Greg Abbott halting data center approvals pending audits. Shapiro's executive order mandates full electricity cost payment, water limits, and bans fast-track permits, while Abbott's pause follows a $40 billion Google investment in Texas.

AI https://www.fastcompany.com/section/artificial-intelligence may be booming, but the infrastructure powering it has become a political liability https://www.fastcompany.com/91563531/real-reason-people-hate-ai-data-centers-so-much . For years, governors competed to lure data centers with tax breaks, expedited permitting, and promises of jobs and investment. Now, as sprawling AI campuses drive concerns over electricity prices, water use, and local control, some of those same governors are pulling back. The shift comes as data centers become an increasingly potent political issue ahead of the midterm elections. Governors facing reelection, and others with possible national ambitions, are trying to show voters that the costs of the artificial intelligence boom won’t simply be passed on to surrounding communities and ratepayers https://www.consumerreports.org/data-centers/ai-data-centers-impact-on-electric-bills-water-and-more-a1040338678/ . From Pennsylvania to Texas, state leaders who once courted data center development are suspending incentives, tightening permitting rules and, in some cases, halting new projects altogether. Pennsylvania Gov. Josh Shapiro has historically welcomed data center infrastructure to the Keystone State. In his first term, he backed a $90 billion private investment https://penncapital-star.com/economy/mccormick-and-trump-tout-90-billion-for-pa-in-ai-development-and-energy-projects-to-fuel-it/ in data centers, energy generation, and workforce development. He also created a pilot program for government workers to use ChatGPT. Last summer, he backed a $20 billion Amazon Web Services https://www.pa.gov/governor/newsroom/2025-press-releases/gov-announces-amazon-to-invest--20b-in-pa--largest-capital-inves investment to build two data centers in Luzerne and Bucks counties. In February 2026, he maintained his “all in” stance on AI infrastructure while announcing plans to make data centers meet stricter environmental standards. https://www.spotlightpa.org/news/2026/02/shapiro-expected-to-address-housing-costs-energy-demand-and-unfinished-business-in-budget-pitch-capitol/ But earlier this month, the Democrat changed course, announcing that data centers will now need local approval before receiving state permits https://apnews.com/article/ai-data-centers-governors-pennsylvania-texas-shapiro-abbott-f96176c2bcb76cbe8e823ed79fbdf196 . In an executive order https://www.pa.gov/governor/newsroom/2026-press-releases/governor-shapiro-signs-executive-order-on-data-center-developmen , Shapiro imposed more stringent standards on data center projects. New developments will have to show how they plan to pay the full cost of their electricity and limit water use. The order also prohibits nondisclosure agreements and fast-track permits https://www.pa.gov/agencies/oto/fasttrack . Developers will no longer receive the same tax exemptions or permitting flexibility that characterized Shapiro’s earlier approach. The potential White House hopeful stopped just short of announcing a statewide moratorium. Meanwhile, Shapiro’s Republican opponent for governor, state Treasurer Stacy Garrity, recently endorsed a temporary moratorium https://www.politico.com/news/2026/08/24/data-centers-oh-s-t-moment-01046465 . Earlier this month, Texas Gov. Greg Abbott told ABC News that data center companies “ dug their own grave https://www.yahoo.com/news/us/articles/greg-abbott-says-ai-data-023112372.html .” Last November, the Lone Star State leader called Texas the “epicenter of AI development,” and backed a $40 billion Google investment in three data center campuses. But since then, he has drastically changed his stance. Abbott halted data center approvals https://www.texastribune.org/2026/08/03/texas-data-center-project-audit-greg-abbott/ until regulatory agencies audit projects’ tax breaks, power use and generation, water cooling, and impact on local communities. Companies that fail their audits will be denied grid access, according to The Texas Tribune . Audit requests will have to go through the Electric Reliability Council of Texas’s interconnection queue, which is tracking more than 1,800 projects, 90% of which are data centers https://www.texastribune.org/2026/08/03/texas-data-center-project-audit-greg-abbott/ . The Republican governor, who is running for reelection this fall, made the switch after widespread backlash across the state over rapid data center development without local support. Arizona Gov. Katie Hobbs has also reversed course on data center policy. Hobbs, who rose from state representative to state senator to state Senate Minority Leader before becoming governor in 2023, voted to create data center tax exemptions https://www.azleg.gov/ars/41/01519.htm as a state senator in 2013. But this January, she curtailed that policy with a three-year moratorium https://www.publicsource.org/shapiro-data-centers-pennsylvania-energy/ on the tax exemption. The move was part of a bipartisan $18.3 billion budget deal https://news.bloombergtax.com/daily-tax-report-state/arizona-data-center-tax-incentive-pause-signed-by-governor-hobbs that redirected money toward border security, water security, and tax credits for middle-class Arizonans. The data center tax breaks cost the Grand Canyon State approximately $38 million annually and have long drawn criticism. Originally, Hobbs, a Democrat, wanted to ban the exemptions completely https://www.multistate.us/insider/2026/6/22/state-data-center-policy-shifts-as-governors-impose-new-restrictions . Democrats celebrated the move https://azmirror.com/2026/06/11/arizonas-18-3b-budget-passes-with-1-4b-in-trump-tax-cuts-and-a-data-center-freeze/ , an important political win for Hobbs as she seeks reelection https://katiehobbs.org/ this November in one of the country’s most politically divided states. New York Gov. Kathy Hochul went a step further than Pennsylvania’s Shapiro, signing the first statewide data center moratorium https://www.governor.ny.gov/news/first-statewide-moratorium-new-hyperscale-data-centers-launched-governor-kathy-hochul in July 2026. She cited concerns about data centers popping up in small communities across the state without the infrastructure needed to support them. The moratorium will last one year and bars new data centers that require more than 50 megawatts https://www.nytimes.com/2026/08/18/nyregion/how-new-york-is-restricting-data-centers.html of power to operate. It also won’t delay projects that already have all the required permits https://www.nytimes.com/2026/08/18/nyregion/how-new-york-is-restricting-data-centers.html , according to The New York Times . Rather than allowing development to proceed unchecked, Hochul, a Democrat, says she wants New York to establish clear rules and thoughtful regulations https://www.governor.ny.gov/news/icymi-governor-hochuls-letter-editor-wall-street-journal-how-new-york-will-get-ai-data-centers that protect ratepayers. It marks a turn from Hochul’s previous emphasis on AI as an engine of innovation. In her January 2026 State of the State address, Hochul highlighted AI’s potential to improve healthcare access, quality, and efficiency. She noted that AI advancement could “ lower costs for all patients https://digital.ny.gov/state-of-the-state-book-2026/ table-contents .” Earlier this year, she also signed off on a $30 million gift https://www.governor.ny.gov/news/governor-hochul-launches-nations-first-independent-ai-research-center-public-university-state , the largest ever to a State University of New York, from Bloomberg LP cofounder Tom Secunda to establish the Center for AI Responsibility and Research. The goal is to keep the state competitive as AI technologies advance. Before the moratorium, four hyperscale data centers https://insideclimatenews.org/news/14072026/new-york-first-data-center-moratorium/ had already been built across New York. They remain in operation today. In Illinois, Gov. JB Pritzker has also made a U-turn on AI infrastructure. In 2019, his first year as governor, Pritzker signed tax incentives for data centers https://capitolnewsillinois.com/news/data-centers-emerging-as-key-issue-in-illinois-governors-race/ into law, a move celebrated across the political spectrum for its economic potential. Republicans and Democrats alike touted the jobs and labor income the bipartisan legislation could generate. In February 2026, however, Pritzker reversed course https://www.nrdc.org/press-releases/pritzker-announces-two-year-suspension-state-tax-incentives-new-data-center , signing a two-year suspension of the tax incentives that went into effect in July. The move came amid the state General Assembly’s proposed Protecting Our Water, Energy, and Ratepayers POWER Act https://www.ilga.gov/documents/legislation/104/HB/PDF/10400HB5513lv.pdf , which sought to address rising utility costs and the climate effects of AI infrastructure. At the Aspen Ideas climate conference in July, Pritzker said his 2019 legislation was not meant to support hyperscale data centers. https://www.nytimes.com/2026/07/23/climate/data-centers-pritzker.html Pritzker, a Democrat, said he favored closed-loop systems that didn’t strain the state’s antiquated grid or contaminate water. He also said he did not have the authority to enact a data center moratorium under Illinois law, according to The New York Times. A year ago, Ohio Gov. DeWine vetoed legislation to end the sales tax break https://www.statenews.org/government-politics/2025-08-08/following-dewines-veto-sales-tax-break-for-ohio-data-centers-survives-for-now for Ohio data centers that had been in place since 2013. Legislators, lobbyists, and citizens were unhappy with the move. With more than 200 data centers https://www.occ.ohio.gov/factsheet/quick-facts-data-centers-ohio , Ohio has the fifth-highest concentration of data centers in the country. The rapid expansion brought on rising power costs, but also generated $27 billion in capital investment https://governor.ohio.gov/media/news-and-media/governor-dewine-announces-pause-of-data-center-tax-exemption in 2025. Nevertheless, in May, Signal Ohio reported that data center tax breaks in 2025 cost $1.4 billion more than expected https://signalohio.org/ohio-data-center-tax-break-cost-1-4-billion-more-than-expected-in-2025/ . Republican DeWine paused the tax exemption https://goodjobsfirst.org/ohio-data-center-tax-break/ within a week, and requested lawmakers to review the industry’s costs to the state. The pause only impacts exemption requests and is not a ban on data center development, according to Argus Media. Despite polling showing that 71% of Oregonians https://www.dhmresearch.com/wp-content/uploads/2026/08/OR-Pulse AI-and-Data-Centers-40060-Toplines-July-2026.pdf have a negative outlook on data centers, the state has become a huge data center hub, luring investment with no sales tax, low electricity rates, and property tax breaks for industrial development, according to the Oregon Capital Chronicle . In February, Oregon Gov. Tina Kotek launched and passed legislation to expand the state’s tax breaks https://www.oregonlive.com/silicon-forest/2026/02/much-bigger-data-center-tax-breaks-on-deck-in-oregon-gov-tina-koteks-bill.html . The bill would have doubled Oregon’s five-year property tax exemptions to 10 years, and set up a fast-track permitting program https://legiscan.com/OR/bill/HB4084/2026 . But after intense backlash, Kotek backed an amended bill establishing a yearlong moratorium https://oregoncapitalchronicle.com/2026/03/06/after-walkouts-budget-woes-and-tensions-over-trump-oregon-lawmakers-wrap-for-2026-session/ :~:text=She%20also%20changed%20her%20tune%20on%20one%20of%20her%20signature%20pieces%20of%20legislation%20amid%20concern%20that%20the%20bill%20would%20further%20incentivize%20data%20centers%20in%20the%20state%2C%20supporting%20a%20year%2Dlong%20moratorium%20on%20a%20specialized%20tax%20break%20program%20that%20the%20centers%20often%20capitalize%20upon%20in%20urban%20and%20suburban%20Oregon. on data centers using Oregon’s enterprise zone programs. As Kotek, a Democrat, runs for reelection, her stance has shifted further. On August 7, she announced support for local data center moratoriums https://www.statesmanjournal.com/story/news/politics/2026/08/07/kotek-announces-support-for-local-data-center-development-moratoriums/91220332007/?gnt-cfr=1&gca-cat=p&gca-uir=true&gca-epti=z114531p000650c000650e009350v114531d--45--b--45--&gca-ft=149&gca-ds=sophi and now wants to make sure the tax breaks are not overly generous https://www.opb.org/article/2026/07/02/oregon-governor-data-centers-utility-rate/ . Kotek’s opponent for governor, Republican state Sen. Christine Drazan, opposes a moratorium https://oregoncapitalchronicle.com/2026/08/28/data-centers-emerge-as-new-flashpoint-between-kotek-drazan-in-oregon-governors-race/ and voted against the POWER Act https://x.com/ORDems/status/2077117488551309394 in 2025—which made utilities establish a separate rate class for data centers. Kotek’s Data Center Advisory Committee will release its preliminary findings in September regarding the governor’s new data center recommendations https://www.statesmanjournal.com/story/news/politics/2026/08/21/oregon-gov-tina-kotek-to-back-2027-bill-on-data-center-approach/91407558007/?gnt-cfr=1&gca-cat=p&gca-uir=true&gca-epti=z113131p002450c002450e007450v113131d--31--b--31--&gca-ft=99&gca-ds=sophi for water usage, energy consumption, and labor.