{"slug": "the-art-of-the-data-center-deal", "title": "The Art of the Data Center Deal", "summary": "A commentary argues that states and localities should stop granting tax subsidies to data center developers, citing a Wall Street Journal report that states are renegotiating or recapturing billions in tax breaks previously given to such projects. The piece contends that tech companies racing to build AI computing capacity will pay for construction and infrastructure themselves, and that permitting should require developers to fund grid upgrades, schools, and other community benefits.", "body_md": "Huge tech companies are in a race to release competitive AI products. Their newest models require huge amounts of computing power both for training and to deliver service. Without enough computing power, a company will fall behind in the AI race and its stockholders will be hurt and unhappy.\n\nPublic resistance to data centers gives permit-granting local officials a very good hand to play. Data centers can and should be built without public subsidies and in a way which strengthens host communities. Building data centers is one way that tech billionaires are putting money back into communities, whether they want to or not. The challenges for the communities are to get lasting benefit from the gazillions waiting to be spent and to avoid the downside when data centers go broke, as some certainly will.\n\n# Subsidies\n\nAn [article](https://www.wsj.com/politics/policy/states-that-gave-data-centers-billions-in-tax-breaks-are-now-ripping-up-the-deals-4879c4f9?st=NQPsDm&reflink=desktopwebshare_permalink) in *The Wall Street Journal* tells how states which had given billions in tax breaks to data center projects in the last few years are not only banning new subsidies but trying to renegotiate or recapture the subsidies they’ve already approved.\n\n“They seem to have more money than God and they’re able to build without the need for these types of incentives,” said [Democratic State Rep. Tristan] Rader who is proposing new data-center taxes and requirements that developers pay more for power and electrical infrastructure. He represents parts of Cleveland, where locals have pushed back against the facilities, and he hopes the new threats force the companies to the negotiating table…\n\n“Our industry has been knocked on our backfoot,” said Steve DelBianco, chief executive of NetChoice, a tech-industry group that fights regulation. DelBianco said that the backlash is based on misinformation and that he has warned state officials that eliminating incentives would hurt their economies…\n\n“Ohio, Arizona and Illinois have become less attractive after pausing or axing exemptions, said Ian Boccaccio of tax firm Ryan. He said he was urging data-center clients to consider using other investment tax breaks offered by states for companies. In the long run, industry watchers said, the facilities offer too many benefits for governments to pass them up.\n\n“This is a passing fad,” Boccaccio said of the opposition, “and in two years we won’t have these issues with data centers.”\n\nStates and localities should ignore what DelBianco and Boccaccio are saying. It’s self-serving BS. Tech companies need to build data centers immediately or become uncompetitive. They’re not going to wait for the “fad” of opposition to disappear in two years.\n\nThere will be developers who can’t afford to build without subsidies. That’s their problem, not the problem of the jurisdiction. In this market jurisdictions should only permit those developments which can arrange their own financing. They’re going to pay what they need to pay to get the data centers built, as they should. Knowing that data center builders will pay up, states should also consider stopping tax breaks for other types of development!\n\n# Infrastructure\n\nNew data centers and their power, water, transportation and other infrastructure needs are a once-in-a-generation opportunity to make host localities stronger. Permitting must ensure that these projects not only fund the infrastructure they will need but also that upgrades benefit the community as a whole. It’s not enough to build new electrical generation, for example; that new capacity must be tied into the local grid in such a way that it can provide backup in case of other outages, even if the data center must temporarily curtail use. If a project says it will create long-term jobs, it may be required to pay for capital additions or improvements to schools. In many cases adding capacity for a data center can and should reduce the cost of utilities to other ratepayers in a locality. Tech companies are realizing that they must give rather than get incentives; that’s a good thing. [From](https://www.wsj.com/tech/ai/data-center-deals-community-cf92390f?st=AhUkwV&reflink=desktopwebshare_permalink) [The WSJ](https://www.wsj.com/tech/ai/data-center-deals-community-cf92390f?st=AhUkwV&reflink=desktopwebshare_permalink):\n\nTo overcome reluctance by locals, big tech companies are committing to community engagement and a set of principles that address the things residents worry about most. Microsoft, for example, calls its [five-point commitment](https://blogs.microsoft.com/on-the-issues/2026/01/13/community-first-ai-infrastructure/) “community-first AI infrastructure.”\n\nFor its gargantuan data center in Louisiana, [Meta](https://www.wsj.com/market-data/quotes/META) is [committing](https://datacenters.atmeta.com/richland-parish-data-center/) to lowering the energy bills of locals and putting back more water than it takes out…\n\n[OpenAI](https://www.wsj.com/topics/subject/openai) recently announced $80 million in investment in community projects in Effingham County, Ga., where it seeks to build a massive, 3.2 gigawatt data center. “We understand why people are skeptical of data centers, and it’s our responsibility to earn their trust,” says a company spokesman.\n\nIt is in the interest of jurisdictions to put only necessary infrastructure restrictions on a project. For example, where ground water is scarce, it is necessary to insist that there be no net water use (usually accomplished by a closed loop cooling system). However, if the site is on a free-flowing river or lake, using that water for cooling may be perfectly acceptable. Better to focus the developer’s dollars on those infrastructure improvements the jurisdiction needs than imposing a politically correct but locally unneeded restriction.\n\n# Protecting against bankruptcy\n\nSome projects may go broke during construction. Some data centers will certainly go bankrupt during operation. Communities should not guarantee any data center debt of any kind; they must also make sure that a half-finished project doesn’t become a derelict pit or that a cash-strapped developer doesn’t economize by skipping promised local infrastructure improvements. Wherever feasible, permitting should require needed infrastructure to be done before the actual project can go online. It is also reasonable to require bonding so incomplete projects are remediated. Conditions put on a permit must be enforceable against whomever owns and/or operates the facility. If the data center is sold in bankruptcy or otherwise, the conditions must be written in such a way that they go with the property and will survive a trip through bankruptcy court. It is fine for the jurisdiction to also have recourse against the original permittee, but that recourse must be in addition to enforceability against any future owner or operator.\n\nBankruptcy may be a good thing for a locality where an unprofitable data center is built. A new stronger owner will acquire the assets with a lower cost than the original builder. That new owner may be able to charge less and/or attract new business. If so, the locality will continue getting benefits by having the facility in operation.\n\n# Predictability\n\nRight now the big tech companies have huge amounts of capital and the ability to spend more. They can literally afford to spend whatever it takes to get data centers built, especially if their costs are not substantially more than those of their competitors. What these companies cannot afford is to fall behind their competitors in computing capacity and the ability to develop and operate the latest AI models. They won’t choose locations for data centers based on subsidies (which they’re not going to get). They won’t look for just the cheapest places to build. The locations for their next rounds of huge investments will be largely based on how long it will take to get the necessary permitting and how predictable the permitting process is. It’s better for them to get a quick “no” on a location so they can move on to the next prospect than have an interminable process which might eventually result in a highly qualified “yes” followed by a long period of litigation delays.\n\nThe jurisdictions which get the huge benefits of the data center frenzy will be those places which offer a well-defined schedule and requirements for the permitting process. This doesn’t mean a guaranteed “yes”; this doesn’t mean not imposing reasonable requirements. It does mean that the jurisdiction must have some way of countering those who are simply opposed to data centers of any kind or even development of any kind and who are adept at using delay as weapon of mass project destruction.\n\n“Think local; act local” is a good motto. Except for initial meetings where almost everyone will have their say, hearings should be restricted as much as the law allows to locally germane issues. Whether AI is a “good idea” is not a local issue; the data centers are going to get built somewhere. Whether so-and-so should be a multi-billionaire is also not germane. What is important is that the builder have enough money to meet the conditions and improve the community. Exactly what resources must be conserved or built is crucially important. The technical means for meeting these requirements should be open so long as results can actually be measured and met. “No net ground water use,” when appropriate, is a good and measurable requirement. Specifying in great detail exactly what technology must be used to achieve this objective is not helpful and can lead to procurement and permitting delays, especially as vendors try to get an advantage through the hearing process.\n\nAny jurisdiction which can offer assurances that a permit, if granted, will be final given compliance will be at a huge advantage. Jurisdictions which can require anyone seeking an injunction to delay an already permitted project to post a bond to cover the cost of project delay if the appeal fails will be at an enormous advantage – and will also be on a fast track to getting the benefits of the project.\n\n# Moving forward\n\nThere should not be special rules for data centers; they are just one type of development. Instead of just banning subsidies for data centers, states and localities should stop all special subsidies and tax breaks for any type of development. Instead of fast permitting just for data centers, permitting should be made fast and predictable for all kinds of construction including residential housing, new roads, and a redone power grid. Since it is clear that global supply chains have become too complex and subject to both domestic and international political interference, more capacity will be built here in the US with its secure energy supply if we can stay out of our own way and avoid giving self-proclaimed stakeholders the power of infinite delay.\n\nSince the money is there to build them now, let’s use data centers as a model for how development should – and shouldn’t – be encouraged, financed, and permitted in the future.\n\n**See also:** [Data Centers are Blue Collar Revenge](https://fractalsofchange.substack.com/p/data-centers-are-blue-collar-revenge/comments)", "url": "https://wpnews.pro/news/the-art-of-the-data-center-deal", "canonical_source": "https://fractalsofchange.substack.com/p/the-art-of-the-data-center-deal", "published_at": "2026-09-11 21:39:17+00:00", "updated_at": "2026-09-17 01:24:46.968735+00:00", "lang": "en", "topics": ["ai-infrastructure", "ai-policy"], "entities": ["Wall Street Journal", "NetChoice", "Steve DelBianco", "Tristan Rader", "Ian Boccaccio", "Ryan", "Ohio", "Arizona"], "also_reported_by": [], "alternates": {"html": "https://wpnews.pro/news/the-art-of-the-data-center-deal", "markdown": "https://wpnews.pro/news/the-art-of-the-data-center-deal.md", "text": "https://wpnews.pro/news/the-art-of-the-data-center-deal.txt", "jsonld": "https://wpnews.pro/news/the-art-of-the-data-center-deal.jsonld"}}